Nvidia alternatives: 4 tech investing themes
Nvidia , the central pillar of the AI trade for years, has become a battleground stock as investors grapple with the espionage scandal surrounding CEO Jensen Huang. But this isn’t the time to give up on tech, despite some big swings in the AI trade and concern about a data center slowdown. Anthropic’s expected IPO next week could revive momentum in the sector. And while Nvidia’s troubles remain an overhang for the sector, some areas of tech look attractive for their defensive properties or long-term growth outlooks. The hyperscalers remain foundationally strong, along with cybersecurity companies. Investors might also consider robotics and quantum computing companies that should benefit long-term from AI development. Granted, Nvidia’s troubles remain front-and-center . The company’s chips and software aren’t just core technology across the AI compute industry. Nvidia is also financing the buildout through equity stakes, debt, and financing deals with firms like Blackstone and Apollo Global Management — aiming to “mobilize over $500 billion” for AI infrastructure, as Nvidia put it in an August press release . “The financing structure of the buildout matters,” said Yung-Shin Kung, CIO of Mast Investments, in a commentary. “When capex is funded with borrowing, equity investments can start behaving like credit bets. And novel financing structures are creating credit multipliers.” The midterms injected additional uncertainty into the AI race as Democrats promised to rein in the data center buildout. But there’s scant evidence of how that will actually play out. And hopes are high that the Anthropic IPO, with an expected valuation over $1 trillion, could keep much needed capital flowing into the sector. Analysts and investors told CNBC there are some solid themes within tech that should persist through whatever speed bumps lie ahead. Cybersecurity: the rally can keep going AI is making genuine progress in mathematics and other fields, with implications for the nature of scientific inquiry and the systematization of knowledge. Anthropic made forays into cryptology over the summer, and investors think these sorts of moves will make cybersecurity even more critical. Scale and the ability to work with large amounts of data are what matter, says YieldMax strategist Mike Khouw. That should make companies like Palo Alto Networks and CrowdStrike Holdings solid bets long-term. “The biggest players in the space are going to inherently have an advantage,” he said. “That’s not to say that novel techniques and approaches to this kind of thing aren’t going to emerge. But my money would be on the biggest players in the space for now.” Paul Meeks, head of technology research at Freedom Capital Markets, concurs. “I would [consider] the cybersecurity stocks like Palo Alto Networks and CrowdStrike and maybe even Palantir – not that they’re necessarily cheap,” he said. “They don’t necessarily depend on incremental data center building.” Palo Alto has gained 85% this year to around $341 and trades at 76 times estimated 2027 earnings, according to FactSet consensus estimates. Analysts see upside, however, with an average target of $405. CrowdStrike is up over 100% to roughly $235. It’s even pricier at 150 times estimated 2027 profits. The average target is $254, implying minimal gains from here. Still, Deutsche Bank analyst Brad Zelnick recently upgraded CrowdStrike to a buy and raised his target to $300, saying “you ain’t seen nothing yet,” according to a Nov. 2 note. The company’s estimate of a $550 billion addressable market in 2034 will prove conservative, he noted, “given a tsunami of cyber demand materializing as the AI frontier advances.” He added, “we appreciate the premium multiple” on the stock, but the market may still be “underpricing the durability of growth and estimate revisions ahead, and a future where the value of Cyber may ironically prove greater than the entirety of what it classically protected.” Hyperscalers: Ports in the storm Hyperscalers Alphabet , Amazon.com , Microsoft and Meta Platforms have several bulwarks against a data center construction slowdown. All have diversified revenue streams, high credit ratings, and access to cheaper capital than neoclouds and pure-play data developers like Coreweave . Whether the buildout will actually slow, and at what pace, is debatable. While Democrats won big partly on opposition to data centers, legions of them are already permitted or under construction, including in Texas, Georgia, and Ohio, three states with Democratic governors-elect. Labor leaders sound bullish on the buildout, suggesting portions of the politically important labor movement would oppose construction slowdowns. “This is the first chance in a generation for skilled trades folks to get into the upper middle class,” Don Slaiman, International Brotherhood of Electrical Workers, Local 26 political coordinator, told CNBC. Even if state and local pushback impedes the buildout in the short term, it could end up bolstering the balance sheets of hyperscalers at a time when capital access is growing scarce and getting costlier. Microsoft, Alphabet and Amazon also have robust and growing cloud revenues, a bright spot amid rising capex and AI threats to legacy businesses like software (Microsoft), e-commerce (Amazon) and traditional internet search (Google). “‘Cloud continues to be where returns are most visible” at Google and Amazon, said JPMorgan analyst Julian Mitchell in a note, pointing out that Google’s cloud revenue rose 103% year-over-year in the last quarter and Amazon reported a 39% jump in cloud revenue. While the hyperscalers have the scale and revenue base to survive shakeouts in tech, they diverge in many ways. JPMorgan, for instance, removed Alphabet from its focus list on Wednesday, citing concern that “AI search monetization improvements could take time, & margins will likely be pressured over the next couple quarters by bridge compute deals.” JPMorgan said its focus picks are now Amazon and Meta, the latter a recent addition due partly to Muse and “AI-driven ad improvements.” The next wave: Robotics and quantum computing Although they’re more speculative beneficiaries of AI, robotics and quantum computing could be solid long-term bets, Bob O’Donnell, founder of TECHnalysis Research, told CNBC. “Most of the robotic arms have been [doing things like] moving a huge piece of sheet metal or something. Now imagine it doing the fine tuning, screwing in the nuts and bolts of all this stuff,” he said. Industrial robotic arms are dominated by non-U.S. companies like Japanese FANUC and Swedish-Swiss multinational ABB. But U.S. firms including Tesla and Intuitive Surgical stand to gain from an AI-infused robotics revolution. Tesla is pivoting some production from cars to its Optimus humanoid robot and shifting its car focus to autonomous vehicles like the cybercab. Intuitive, which makes robotic surgery technology like its Da Vinci system, is incorporating AI and machine learning, in part to expand into ” more complex cases .” Both stocks are down this year, but Wall Street is standing by them. Tesla has an average $423 target, up from recent prices around $394, according to consensus estimates. Intuitive’s average target is $492, implying 10% gains from recent prices around $445. Quantum computing companies like IonQ and D-Wave Quantum are even more speculative, but could be winners long term as challenges to traditional forms of internet security grow more powerful. “I think we’re going to see some advancements in quantum computing at some point. That’s going to be very interesting,” O’Donnell said. “When we stop thinking of AI as being a standalone thing, which is where we are right now, then it becomes a question of how does this get applied to industries.” IonQ’s average target is $54, well above recent prices around $35. D-Wave has an average target of $24, more than double recent trading around $10.70.
