Nvidia is up 33% year to date but faces competition from Google TPUs and other ASICs.
Oracle is taking on significant debt to scale its cloud infrastructure amid AI demand.
Oracle shares fell 12% on a Q2 revenue miss despite strong AI backlog and upbeat guidance.
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It’s the big question on the minds of investors even before the month of December starts: Will stocks be treated to a Santa Claus rally again this year? Of course, Santa doesn’t come around every single year, and while a market pullback alongside a big lump of coal could be left under the tree instead, I’d argue that it makes more sense to consider the year ahead or even the next three years than the next three weeks.
Like it or not, seasonal rallies don’t always materialize, even when it seems like a Goldilocks environment is in place, and the stage is set for markets to end a strong year with one last final leg higher. While it’s impossible to know what’s up next in the near term, I do find the following stocks a great value as we enter the best time of the year.
For some reason or another, it feels like a lackluster year for Nvidia (NASDAQ:NVDA), even though it’s way ahead of the S&P, up close to 33% year to date. Historically speaking, it’s a less remarkable year for the stock, even though the results have been nothing short of spectacular.
Undoubtedly, it seems as though expectations have caught up with the legendary GPU maker. And while Alphabet (NASDAQ:GOOG) Google TPUs and other ASICs could erode a bit of the competitive edge, I do think that it’s a mistake to count Nvidia out of the game, given the power of raw AI compute. If AI innovators are serious about moving on the path to recursive self-improvement and achieving some form of superintelligence, arguably, there isn’t enough computing power to go around.
While Google TPUs pose a risk to Nvidia’s dominance, I’d argue that the massive performance leap made by Gemini 3.0 shows that AI advancement isn’t plateauing. And, at the end of the day, that’s good news for the AI trade and demand for all kinds of AI chips. While Dr. Michael Burry might be betting against the firm, I wouldn’t seek to do the same, especially as AI monetization, agents, and continued advancement en route to AGI pave the way for continued spend on AI compute.
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Speaking of big AI spending, Oracle (NYSE:ORCL) seems willing to swing for the fences, with a significant debt load and the potential to take on even more debt to keep building. Undoubtedly, the legacy software company is undergoing a profound, but pricey, and arguably risky debt-fuelled transformation. There’s a lot of execution and overbuild risk here. And there’s also the risk of what happens to OpenAI, one of its biggest customers.
Though Oracle shares aren’t without more than their fair share of risk, I do think there’s also explosive upside if management can deliver and AI demand stays robust through 2030. At this juncture, all signs suggest there isn’t enough compute to go around, and Oracle would be right to be aggressive about scaling up and improving its slice of profits in the AI revolution. In any case, if there’s a global AI compute shortage, more firms on the supply side have to step up to the plate.
While companies across the board could pull back on spending, especially if monetization doesn’t live up to its potential, or if a “data wall” of sorts drags on the pace of model advancement, I do think far fewer investors are focusing on what could go right these days (many analysts see considerable upside from these depths), especially as Oracle Cloud Infrastructure (OCI) accelerates its growth and becomes a bigger slice of the total revenue pie.
Undoubtedly, anywhere there’s a considerable debt load and nerves about a potential AI bubble bust, there’s bound to be extreme fear about what could happen if things don’t go as planned (think an AI pause or cooldown of sorts). And while I’m no fan of adding to an already sizeable debt pile to keep the foot on the gas, I do think Oracle’s bold bet might just pay off as AI innovators seek as much compute as they can get to power the AI revolution.
After tumbling close to 12% on a second-quarter revenue miss, I think there might be an opportunity to buy. The AI backlog is booming, and guidance is upbeat, but, then again, it’s hard to ignore the free cash flow situation and all that debt, which may very well backfire in a big way if an AI bubble does burst in the new year.
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