Artificial intelligence (AI) isn’t going to destroy civilization or take away half of the jobs for Americans. Nvidia (NVDA +0.57%) CEO Jensen Huang doesn’t believe that’s going to happen, going as far as to say the idea that AI will destroy civilization is “complete nonsense.”
At a recent Goldman Sachs conference, Huang called into question the fearmongering that’s been going on, saying that for some companies, such as those involved in cybersecurity, there’s an incentive to scare the public and to be seen as providing the solution. “Who doesn’t want their market to be hysterical about their product and line up around the corner for it?”
To say that Haung is skeptical about the AI-fueled growth of cybersecurity stocks is a bit of an understatement. Investors should also think twice about these types of stocks.
Image source: Getty Images.
Many top cybersecurity stocks are trading at incredibly high valuations.
To investors, Nvidia, being the largest stock on the U.S. markets with a market cap of around $5 trillion, may seem expensive. But it’s actually a far cheaper option than many other stocks, especially cybersecurity stocks.
Nvidia, for instance, trades at 24 times its estimated future profits, which are based on analyst projections. That’s a bit higher than the S&P 500 average of 20, but some kind of premium is surely justifiable for the leading AI company whose chips are fueling the AI revolution.
But the same can’t really be said for top cybersecurity stocks, whose valuations have become mammoth with respect to earnings. Palo Alto Networks (PANW +0.31%) has a market cap of around $300 billion, but it trades at nearly 80 times its expected future earnings. CrowdStrike Holdings (CRWD +3.02%), another top cybersecurity company, worth around $240 billion, trades at a forward price-to-earnings multiple of around 170.
By comparison, Nvidia’s stock looks like a bargain, and it has arguably far better growth prospects, as there is significant competition in the cybersecurity space. For those companies to justify their high valuations, there needs to be the expectation of significant future growth, which circles back to Huang’s claims that there is an incentive for cybersecurity companies to convince investors that there is a disaster ahead, and that their products are the solutions.
Today’s Change
(0.57%) $1.21
Current Price
$212.17
Key Data Points
Market Cap
Day’s Range
$211.16 – $213.94
52wk Range
$164.27 – $236.54
Volume
473.6K
Avg Vol
131.1M
Gross Margin
74.67%
Dividend Yield
0.25%
Investing in Nvidia may still be the best option for AI investors.
Sometimes the best opportunity is the most obvious one. Nvidia is leading the AI revolution, and it’s still in an excellent position to benefit from AI’s growth. Buying cybersecurity stocks is riskier given the level of competition in the industry. And in five years, while CrowdStrike has risen by about 260% and Palo Alto is up around 360%, they’ve both still trailed Nvidia, which has skyrocketed approximately 850% in value.
While it may seem like the safe and obvious choice for AI investors, Nvidia can still be one of the best AI stocks to buy right now.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike, Goldman Sachs Group, and Nvidia. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
