Nvidia’s (NASDAQ:NVDA) performance in 2023 was nothing short of stellar. The previously $300-billion company shot through the ranks and started competing with Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) as the most valuable company in the world. However, some analysts say the company has little left in the tank. Indeed, in the last five days alone, NVDA stock has been down over 11%, leading to others looking for opportunities that they feel are better than Nvidia.
I believe Nvidia has what I call an “iPhone problem” in that its record-breaking run could end when there are longer lineups around the block to access its products. Further, Nvidia’s business is cyclical, and the company is highly dependent on sales. This means the company will likely need to diversify its product line to keep the profit machine churning. For that reason, I prefer companies that sell recurring services using Nvidia’s products.
Cloud computing companies have consistent revenue through cloud computing and related service subscriptions, which could arguably be the foundational technology of future advances. This subscription model turns the company’s initial capital outlay into constant cash flow, making scaling easier and expenses lighter.
So, if you’re looking for stocks better than Nvidia, take a look at these three cloud computing providers. To get the list, I looked for stocks that belong to the “Magnificent Seven,” provide subscription-based cloud computing services and offer services as a subscription-based model.
Amazon (AMZN)
The e-commerce company has always had a knack for venturing into various businesses that made it into the tech giant it is today. Amazon (NASDAQ:AMZN) has made strides in cloud computing with Amazon Web Service or AWS.
AWS recently launched infrastructure regions in Taiwan via the AWS Asia Pacific (Taipei) Region, giving various startups, developers and enterprises additional options for running their applications. In addition, AWS has recently committed $230 million to support generative AI startups that could help solve complex problems in the future.
According to the company’s Q1 2024 financials, net sales grew 13% year-over-year (YOY) to $143.3 billion. The AWS segment made a massive contribution, growing 17% to $25.0 billion. AWS’s growth, now reaching $100 billion annual revenue, highlights the division’s pivotal role in Amazon’s success. The division benefits from the growing demand for AI capabilities and infrastructure modernization services.
With its continued growth in the segment, Amazon offers a strong case for investors looking to take advantage of the increased adoption of cloud computing and the long-term value of the subscription-based model. In terms of sustainable growth, Amazon is one of the top stocks, better than Nvidia.
Alphabet (GOOGL, GOOG)
We all know Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) from its former name, Google. While the company has entered the AI market with Gemini, it also has a solid presence in cloud computing with Google Cloud Platform or GCP.
GCP allows clients to run their apps on the platform, connect to third-party systems and store anything in its artifact registry work with AI-assisted tools powered by Gemini AI. Customers can also conduct live migrations on GCP for lesser chances of encountering issues, gain access to custom virtual machines and provide any needed flexibility, and use other offerings like Google Anthos, BigQuery Omni and Looker.
FY 2024 started with a bang for Alphabet, with revenue growing 15% YOY to $80.54 billion. Google Cloud generated $9.57 billion, which increased 28% from last year’s $7.45 billion. Its operating margin improved from 25% to 32%, leading to an improved $1.89 EPS for the quarter.
CEO Sundar Pichai says, “Our results in the first quarter reflect strong performance from Search, YouTube and Cloud.” He highlighted the company’s drive to push Gemini AI as the leading generative AI platform in the “next wave of AI innovation.”
In addition, the company has started a cash dividend program at 20 cents a share, which is uncommon for tech companies. Alphabet intends to pay quarterly dividends starting now, which might be a bid to draw more investors in the future.
Microsoft (MSFT)
Microsoft is known for its Office software and Windows. Over the years, however, it has ventured into various tech spaces, such as hardware, where it sold the Windows phone, Xbox and even game development through Xbox Game Studios.
One of its recent milestones is announcing its partnership with OpenAI, which helped spark the boom of generative AI. This has helped grow one of its segments, intelligent cloud, which includes Azure and other cloud services.
According to its latest financials, Microsoft experienced strong growth driven by its surge in cloud computing and Azure services. The company reported a 17% growth in revenue to $61.9 billion, operating income was up 23% to $27.6 billion and net income increased by 20% to $21.9 billion, all YOY.
Microsoft’s continuous pursuit of AI is reflected in the success of Microsoft Copilot and its growing competitive edge and growth potential in the cloud sector. Additionally, the positive performance across Office, LinkedIn and Dynamics 365, along with a 62% increase in Xbox content and services, underscores the strength and well-roundedness of its subscription model. So, if you failed to buy into Nvidia and are looking for better stocks, MSFT might be worth checking out.
On the date of publication, Rick Orford held long positions in MSFT, AMZN and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
