Missed Out on Nvidia? 1 Artificial Intelligence (AI) Chip Stock to Buy Before It Goes on a Bull Run

Demand for chips that provide the processing power to train and support artificial intelligence (AI) models is increasing rapidly as governments and technology companies around the globe race to deploy AI applications. This is precisely the reason why Nvidia has witnessed a massive jump in its revenue and earnings in recent quarters.

Nvidia’s AI graphics processing units (GPUs) are in such high demand relative to supply that customers are reportedly having to wait anywhere between 36 weeks and 52 weeks to get deliveries of its flagship H100 processors. Not surprisingly, the chipmaker is looking to ramp up the production capacity for those AI chips, which could allow it to sustain its outstanding share price rally.

However, Nvidia’s 239% gains over the past year have left the stock trading at expensive valuations, with a price-to-sales ratio of 40 and a trailing earnings multiple of 96. Of course, Nvidia’s forward earnings multiple of 36 shows that it is expected to deliver terrific bottom-line growth, while its 5-year price/earnings-to-growth ratio (PEG ratio) of just 0.7 means that the stock is actually undervalued relative to the growth that it is expected to deliver.

Still, certain investors may want to look for cheaper alternative investments they can buy to profit from the AI boom. I’d point those investors toward Applied Materials (NASDAQ: AMAT) — a company that’s going to benefit from Nvidia’s efforts to increase its AI chip production.

Applied Materials is benefiting from AI-driven semiconductor spending

Applied Materials produces semiconductor manufacturing equipment that allows chipmakers and foundries to fabricate chips and integrated circuits. It gets a nice chunk of its revenue from sales to Samsung, Taiwan Semiconductor Manufacturing, and Intel.

In its fiscal 2023 (which ended Oct. 29, 2023), Samsung and Taiwan Semiconductor Manufacturing, also known as TSMC, together accounted for 34% of Applied Materials’ revenue. Intel’s contribution was less than…