The Artificial Intelligence (AI) space is booming right now — but where should you put your money?
Feb. 20, 2021
The AI industry is forecasted to grow at an average growth rate of almost 40% until 2025, which means that plenty of new and established tech companies are investing heavily in AI research and development to try to gain a piece of the pie.
The potential of AI for Appian and Nvidia
AI is essentially the simulation of human intelligence within machines that are programmed to think like humans and mimic their actions, meaning that problem-solving can now be done at scale by a computer rather than a human. AI’s impact is everywhere, including manufacturing, transportation, education, customer service, etc. The fact that the applications of AI are endless is great for businesses like Appian (NASDAQ: APPN) and Nvidia (NASDAQ: NVDA), as it opens up new possible streams for both revenue and growth. The top players in the AI space will no doubt thrive financially; it’s just a matter of figuring out which one is the best bet.
Appian: Bull vs Bear Arguments
Appian is a $16 billion company that has created a low-code software development platform that allows people without coding expertise to create business process management apps. The company has integrated AI services and tools into its platform, making it easier for people to use AI processes without having extensive knowledge about AI. I am bullish on Appian thanks to its focus on low-code technology, which is high in demand right now. Businesses are fed up with hiring engineers to complete simple tasks, and people are more willing to use products like Appian, Zapier, and Airtable to create low- or no-code automation independently. The global low-code development platform market is forecasted to grow from $20.7 billion in revenue in 2020 to $187 billion by 2030, at a Compound Annual Growth Rate (CAGR) of 31.1%.
Appian’s 2020 growth mainly came from app subscriptions, which accounted for 66% of the company’s Q3 2020 revenue, up 57% from the year-ago quarter, while gross margins for are 90%. Appian’s impressive margins, increasing global demand for apps, and the increasing demand for easy to use app development tools make me confident this company will be a long-term winner.
Appian is undiversified and mainly focuses on low-code software and automation. Nvidia creates computer parts, develops AI software used in cars, and manages data systems.
Nvidia: Bull vs Bear Arguments
Nvidia is a $340 billion company that became popular for developing high-end graphics processing units for computers, but it has since become heavily diversified. The company has been constantly innovating, with expansion into the AI space as well as the completion of several acquisitions of smaller companies, such as Arm, Mellanox, and Swiftstack, to advance its research and development into chip making and AI.
Nvidia has recently acquired Arm, which specializes in semiconductor manufacturing, for $40 billion. This acquisition combines Nvidia’s leading AI computing platform with Arm’s vast computing ecosystem to create the premier computing company for the age of AI, and we will see accelerating innovation whilst expanding into large, high-growth markets, according to Nvidia. The acquisition adds 13 million developers to Nvidia’s existing network of 2 million developers.
Nvidia’s data center business is booming, with segment revenue rising from 80% year over year in Q1 2020 to 167% in Q2 and 162% in Q3. Total revenue surged 49% in the first nine months of 2020, compared to the year previous. Q3 2020 revenue reached $4.73 billion, up 57% from a year earlier.
As for the bear case for Nvidia; the stock is expensive. Some might say it’s worth the premium given its growth potential, but the company is trading at roughly 23 and 81 times trailing-12-month sales and free cash flow. So if you buy now, you’re paying a premium, but I don’t see the price falling any time soon either.
Which stock is a better buy right now?
The answer to this is simple but depends on your appetite to risk. Nvidia is the more stable and diversified option, with less risk, but most likely less reward. Appian has a much smaller market cap, with more room to grow, but this luxury comes with slightly more risk.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.