Nvidia shares are soaring! Could this AI stock be a better buy?

Demand for Nvidia shares continues to grow and grow. But might this cheaper AI stock be a superior way for investors to play this new tech trend?

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British stock investors still can’t get enough of Nvidia (NASDAQ:NVDA) shares. According to eToro, the tech giant rose to the third most-held stock among its UK clients during the second quarter. This was up from fifth in the first three months of the year.

eToro analyst Sam North notes that “AI excitement is continuing to drive returns, and UK retail investors are ensuring their portfolio provides adequate exposure to this theme“.

Created with Highcharts 11.4.3Nvidia PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

So far, Nvidia’s justifying the hype around its shares. Revenues beat forecasts again in the first quarter to reach a new peak of $26bn. This reflected a 427% surge in Data Center revenues, a division focused on producing microchips for the AI revolution.

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Rising demand for AI shares

It isn’t the only stock whose popularity’s soaring thanks to AI. Stocks with high exposure to this new tech frontier comprised 10 of the 20 greatest ‘top risers’ among eToro’s global customer base.

Biggest risers among eToro customers

RankingCompanyQuarter-on-quarter increase
1Dell Technologies38%
2Broadcom 38%
3Lululemon Athletica28%
4National Grid24%
5Super Micro Computer22%
6Nvidia22%
7Micron Technology21%
8Novo Nordisk21%
9Eli Lilly16%
10TSMC13%

Nvidia’s making incredible progress to harness the growth potential of AI. But I can’t help but fear that this is more than baked into the company’s pumped-up share price.

The business now trades on a forward price-to-earnings (P/E) ratio of 46.6 times. This is higher than, say, Microsoft and Meta‘s corresponding readings of 33.6 times and 26.4 times respectively. Meanwhile, Google owner Alphabet deals on a P/E multiple of 23.4 times.

The danger for investors is that this sort of premium could cause Nvidia’s share price to topple if sales figures begin to cool. It could also be a casualty of a wider market sell-off if fears over the global economy and interest rates grow.

There could be better ways for me to ride the AI theme right now. The Sage Group‘s (LSE:SGE) one company I’d much rather invest in today.

FTSE 100 tech star

Created with Highcharts 11.4.3Sage Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

This FTSE 100 company supplies accounting, payroll and HR software to businesses. And it’s enjoying impressive growth, thanks to its transition to a cloud-based model with better recurring revenues. Underlying sales and operating profit increased 10% and 18% respectively between October and March.

Sage is investing heavily in AI to automate mundane finance tasks, among others, freeing up the company’s time and energy. It launched its Sage Copilot digital assistant in the UK earlier this year, a tool that uses generative AI to complete jobs.

The business has invested heavily in AI since it established a dedicated division several years back, resulting in a pipeline of products it hopes will take revenues to the next level.

Sage’s shares aren’t immune to a potential price correction if fears over the tech sector grow. However, its forward P/E ratio is far below than of Nvidia shares, at 28.7 times.

The UK software giant also looks much more attractive based on predicted revenues. Its forward price-to-sales (P/S) ratio is just 4.4 times compared with 24.7 times for the US tech giant.

I think Sage could be a top dip buy following recent price weakness.

But there may be an even bigger investment opportunity that’s caught my eye:

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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.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Lululemon Athletica, Meta Platforms, Microsoft, Novo Nordisk, Nvidia, and Sage Group Plc. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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