These three tech giants have sustainable competitive advantages that could give them an edge over Nvidia.
Nvidia (NVDA -2.25%) is one of the biggest beneficiaries of the surge in artificial intelligence (AI) demand. The company's GPUs are the prized tools used to train the large-scale language models that underpin generative AI. Big tech companies and cloud providers are snapping up all the Nvidia chips they can.
The results have been astounding for Nvidia: Over the past two years, Nvidia's market cap has grown from about $424 billion to $3.1 trillion. The company is now just above Microsoft and the second-largest company in the world after Apple.
While Nvidia is getting a lot of attention, it's important to remember that it's not the only AI stock you can invest in. There are dozens of other great companies playing a role in the growth of AI, and some of them have better long-term prospects than Nvidia. That's why I predict that these three companies have the potential to surpass Nvidia in value over the next three years.
Image source: Getty Images.
1. Meta Platform
Meta Platforms (META -1.30%) is one of Nvidia's largest customers. CEO Mark Zuckerberg recently committed to procuring 350,000 of the chipmaker's H100 GPUs by the end of this year. Management expects the company's capital expenditures to be between $37 billion and $40 billion this year, matched only by major public cloud companies like Microsoft and Alphabet (GOOG 0.30%) (GOOGL 0.33%). Management expects Meta's capital expenditures to continue to grow in 2025.
While it will be some time before such a huge investment pays off anytime soon, Meta is better positioned than any other company to integrate AI capabilities into its products: The company sees opportunities to improve its advertising business, expand its business messaging services (with custom AI chatbots), build the most popular consumer AI assistant, and increase engagement across Facebook, Instagram, and messaging apps.
This will allow for robust revenue and profit growth over the long term, even with increased depreciation costs due to increased data center investments. Importantly, spending growth will slow over time as Meta determines exactly how much data center capacity it needs to train and use generative AI development.
The company's stock is currently trading at a forward P/E of about 26, which is reasonable for a company with growth prospects. But Meta could surpass its earnings estimates if its generative AI capabilities drive higher ad prices and engagement on Facebook and Instagram and open new revenue opportunities through business messaging and interactions with AI assistants. With a market cap of about $1.35 trillion, Meta could grow quickly over the next three years and overtake Nvidia if one of its AI efforts starts to show very good results.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing Co., Ltd. (TSM -1.29%), also known as TSMC, is the largest chip manufacturer in the world. When a company like Nvidia designs a new chip, it contracts with TSMC to manufacture that chip.
TSMC's biggest strength is its scale. The company accounts for more than 60% of all spending on chip manufacturing. This gives it more money to reinvest in building the capacity to produce faster, more powerful, and more power-efficient chips. Its cutting-edge design capabilities allow the company to maintain a dominant market share because chip designers can't get the same results from other companies.
TSMC is relatively indifferent about who designs its chips. It could just as easily make an Nvidia chip for Meta, Microsoft, or Alphabet. And that's exactly what it does. That puts TSMC in a much shakier position than Nvidia when it comes to the future of AI datacenter chips.
Many of Nvidia's biggest customers have their own chip designs that are specialized for training and using large language models. While these chips aren't as flexible to use as Nvidia's, they are more power efficient and cheaper to acquire, making them increasingly valuable as companies like Meta, Alphabet and Microsoft focus and scale their AI development.
TSMC, on the other hand, can benefit from increased spending on limited resources and increased competition. The company's stock trades at about 26 times forward earnings, but it deserves to trade at a higher multiple as high demand and competition will benefit the company's bottom line and make earnings much more protected on downsides. In comparison, Nvidia is trading at 48 times forward earnings. The true value of both companies is probably somewhere in between. If TSMC experiences multiple expansions and Nvidia experiences contractions, TSMC could surpass Nvidia's market cap over time.
3. Alphabet
Alphabet is already the world's fourth-largest company, but its market cap is about $1 trillion lower than Nvidia's, and yet there's good reason to believe that the Google owner's value will rise faster than the chipmaker's.
At the core of Alphabet is Google Search, and even though it faces regulatory pressure, it's unlikely to lose its position as the world's most popular search engine, which is why it continues to make up a significant portion of marketers' advertising budgets.
Importantly, artificial intelligence assistants such as OpenAI's ChatGPT and Meta AI are not as big a threat as investors once feared. Google uses its own AI, based on Gemini LLM, to directly answer many search queries and link to relevant sources. Management said the AI brief will increase search usage and improve user satisfaction. It also uses AI to support new ways of searching, such as taking videos on your phone and circling content in apps and web pages. Both should lead to increased usage.
But AI has the potential to drive significant growth for Google's cloud platform, which surpassed $10 billion in quarterly revenue for the first time last quarter. Google has won over many big-name customers, including Apple, with its AI development platform on Google Cloud, while its Gemini for Workspace software has helped increase average revenue per user and attract new customers.
Alphabet is certainly spending big to acquire these customers. The company plans to spend about $50 billion in capital expenditures this year, mostly on servers and data centers. But the payoff could be huge, as it looks ahead to AI development demands. Google Cloud could nicely complement its search business and become a bigger part of it.
With shares trading at just 22 times forward earnings, there's plenty of room for expansion. This is especially true when you consider that Alphabet's massive share buybacks, backed by its massive annual free cash flow, should keep its earnings growing at such a high rate. It's actually surprising that investors aren't valuing Alphabet higher than Nvidia already.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy has invested in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has invested in and recommends Alphabet, Apple, Meta Platforms, Microsoft, NVIDIA, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
