Is buying Nvidia stock the best way to get exposure to the artificial intelligence revolution?

Nvidia stock has soared, but is now a smart time for this Fool to top up? He explores the issue and also looks at alternative stocks to consider.

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Artificial intelligence (AI) stocks have been booming recently and Nvidia (NASDAQ: NVDA) is no exception. In the last five years, the chipmaker has skyrocketed a whopping 1,914.4%. That’s amazing.

But where will it go next? I’m a shareholder in the AI darling. To date, my investment is up 110.1%. Given the success I’ve experienced so far, I’m open to gaining more exposure to the sector.

But is buying more Nvidia shares the best way to do this?

A case to be made

The AI industry’s fast evolving and Nvidia’s the frontrunner. Therefore, there’s a clear argument to be made that it makes a lot of sense to own the stock.

That’s especially true after it announced plans for a new processor design called Blackwell at its GTC conference on 18 March. Blackwell-based products will be available towards the tail end of 2024. The chips are expected to be significantly faster than previous models. Chief Executive Jensen Huang noted that Blackwell chips are “the engine to power this new industrial revolution”.

That’s exciting news. It builds on the impressive growth Nvidia has already seen with its current chips. That includes the H100. Surging demand for it helped its Data Centre revenues jump 409% year on year.

Too many risks?

But with all this hype comes one major risk. Nvidia could be in a bubble. There’s plenty of speculation that the stock has risen too quickly.

It’s now one of the largest companies in the world by market-cap. While its growth has been exceptional, shareholders now have high expectations. Any signs of a slowdown could see its price come crashing down.

Time to look elsewhere?

With that in mind, is it time for me to look elsewhere for my next AI buy? There are a few businesses on my radar. Maybe I’ve missed the boat on topping up with Nvidia.

One I like the look of is Scottish Mortgage Investment Trust (LSE: SMT). Nvidia makes up one of the 99 companies it owns. The trust has been gaining momentum lately but it’s still some way off its all-time high.

That’s because in the current macroeconomic environment, growth stocks, which Scottish Mortgage focuses on owning, don’t tend to fair well. It’s down 44.9% from its November 2021 price of over £15. It may continue to suffer as long as interest rates remain high.

But through owning Scottish Mortgage, I get large exposure to AI through companies such as Amazon, ASML, and Shopify, to name a few. What’s more, it’s trading at a 9.5% discount to its net asset value. Essentially, that means I can buy the businesses it holds for cheaper than their market rate. I like the sound of that.

My move

In short, I think buying Nvidia is a smart way to gain exposure. However, seeing as I already own shares, I’m not keen on adding to my position today.

Having a diversified portfolio is imperative. Therefore, I’ll be exploring other options to buy before I consider Nvidia. I like the look of Scottish Mortgage. Not only does it offer me diversification, but I also think its shares look like a steal.

If I had the cash, I’d open a position.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlie Keough has positions in Nvidia. The Motley Fool UK has recommended ASML, Amazon, Nvidia, and Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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