History Suggests 1 Trillion-Dollar Artificial Intelligence (AI) Stock Makes for a No-Brainer Buy, While Another Is Treading in Dangerous Territory

Core Insights - Historical trends suggest that while past performance does not guarantee future results, the stock market often exhibits patterns that can inform investment strategies [1][2] Group 1: Nvidia - Nvidia has experienced a remarkable increase in stock price, rising nearly 1,200% since the beginning of 2023, with its market capitalization increasing by almost $4.2 trillion [4] - The company's success is largely attributed to its advanced graphics processing units (GPUs), which are essential for AI applications and data centers, commanding prices of $40,000 or more per chip [5] - Nvidia's CUDA software platform enhances the utility of its GPUs, allowing developers to maximize performance and build large language models [6] - Despite its strong market position, historical patterns indicate that Nvidia may face challenges, as technological advancements often lead to bubble-bursting events [8][9] - Competition is intensifying, particularly from major customers within the "Magnificent Seven," who are developing their own AI chips, which could undermine Nvidia's pricing power [10] - Nvidia's price-to-sales (P/S) ratio is unsustainably high, historically peaking at around 30 for leading tech companies [11] Group 2: Meta Platforms - Meta Platforms is investing heavily in AI infrastructure, which is a growing but still minor part of its overall revenue, with nearly 98% of its net revenue coming from advertising [14] - The company boasts a vast user base, averaging 3.48 billion daily visitors across its platforms, providing it with significant advertising pricing power [15] - Meta is leveraging AI to enhance its advertising solutions, which is expected to improve click-through rates without being significantly affected by a potential AI bubble burst [16] - The cyclical nature of advertising means that Meta is likely to perform well during economic expansions, which historically last longer than recessions [17] - Meta's strong balance sheet, with over $47 billion in cash and equivalents, allows for aggressive investment in long-term projects like the metaverse [18] - The company's forward price-to-earnings (P/E) ratio of 24 is close to its historical average, suggesting a favorable valuation for potential investors [19]