Nvidia has been a hot stock lately, but these two under-the-radar technology companies could offer even bigger rewards.
shares of Nvidia (NVDA 1.27%) Continue to destroy the market. The company, a top designer of accelerator chips for the exploding artificial intelligence (AI) market, has seen its stock rise 215% in his 52 weeks, including his 82% rise since the beginning of 2024. % increase is also included. NVIDIA is going from strength to strength, beating analyst expectations for 2020. Create each revenue report and build an AI-based profit pile.
However, the stock market has priced Nvidia's stock heavily into future success. AI Hardware Master is trading at extremely high valuations, including 75x earnings and 34x sales. I understand the reluctance to buy trillions of dollars worth of stock at such high prices, no matter how bright its future may be. In the end, I sold some of my Nvidia stock a few months ago to reinvest some of the profits into lower priced growth stocks.
Like Nvidia, let's take a look at two tech stocks with high growth potential today. One is available at a much more attractive valuation and the other operates in a less crowded industry.
This ad tech stock makes sense even at high prices
Forget about the flashy AI breakthroughs for a moment. Want to invest in the backbone of the internet economy?
trade desk (TTD -1.59%) It is disrupting one of the most fundamental aspects of the modern digital world: targeted advertising. As the leading independent platform on the ad buy side, TTD is at the forefront of reimagining how businesses reach customers in a rapidly evolving digital environment.
Its dedication to research and development, evidenced by its continued increase in R&D spending, positions the company to lead the way in an era without basic user tracking tools, such as third-party tracking cookies. TTD has designed an alternative solution called Unified ID 2.0, established this system as an industry standard, and is ready to rely on it even when older cookies are retired.
And TTD's marketing solutions resonate with advertisers desperate to squeeze every last drop of efficiency from limited budgets to drive sales. The industry has experienced a sharp downturn during the inflation crisis, with revenues across the industry seeing subdued or even negative trends. But The Trade Desk never got the memo, and sales never stopped skyrocketing.
TTD Revenue (TTM) Data by YCharts
I'll admit that The Trade Desk's stock price is almost as expensive as NVIDIA's stock price. However, in this case I'm not really worried about competitive pressures. The Trade Desk is also much earlier in its long-term growth story across a huge target market.
So if you're looking for an investment that will directly drive the way your business operates in the digital age, TTD may be a smarter choice than NVIDIA's more speculative investment thesis.
This is a rocket ship held down by gravity.
Now I'm getting to the stocks that actually hold the majority of Nvidia's profits.
Media streaming technology experts Roku (Roku -3.87%) Wall Street's consensus forecast for the first quarter of 2024 has been completely shattered. Sales beat the average analyst estimate by 4%, and the net loss was about half of what Wall Street expected.
Such reports usually cause stock prices to soar. Instead, Roku's stock price fell more than 10% the next day, adding further pain to an already depressed stock chart. The drop in prices is due to conservative guidance for the next quarter, and year-over-year comparisons will be compared to 2023, when higher prices and an expanded lineup of ad-supported services led to higher revenue.
Understood. The downturn in digital advertising remains, but that trend is waning as the economy improves. And no one likes to see annual comparisons go down, even if it means the previous year's results were artificially inflated and difficult to match. Alas, the targeted advertising market is brimming with both new and experienced channels, all looking to capture the lion's share of the available ad buying actions.
But you shouldn't stop reading Roku's guidance at that point. Continue reading a few more sentences and you'll get a more optimistic analysis.
“We remain confident in our ability to accelerate platform revenue growth and continue to grow adjusted EBITDA and free cash flow in 2025 and beyond,” management said. “Roku has direct relationships with more than 81 million streaming households and deepens relationships with third-party platforms such as DSPs, retail media networks, and measurement partners. We're in a good position to get billions of dollars. Budgets will shift to streaming.”
In other words, the company is poised to soar as the advertising market stabilizes and then takes off. We may have to wait until 2025, but the launch is getting closer. Remember his The Trade Desk in the doodle above? Well, Roku is partnering with its ad sales experts to make it easier for TTD buyers to take advantage of Roku's ad serving properties? I just tied it.
So Roku investors have a lot to look forward to. Meanwhile, the stock is a staggering 47% below its yearly high and 88% below its 2021 high. At only 2.3 times sales and 20 times free cash flow, Roku is a high-octane growth stock that trades like a bargain stock. A worthwhile investment.
Nvidia stock could rise from here, but Roku's projected gains are even richer and seem even more likely.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool's board of directors. Anders Bylund has held positions at Alphabet, Criteo, Nvidia, Roku, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Magnite, Nvidia, PubMatic, Roku, and The Trade Desk. The Motley Fool recommends his Criteo. The Motley Fool has a disclosure policy.
