Nvidia has beaten the market for the past three years. Adobe could be even better with three things:
Openai launched ChatGpt on November 30, 2022, launching an insanity of excitement about generative AI and flooding of spending on it. Few companies have made more profits than that nvidia (NVDA) 1.65%)). Chipmaker's Graphics Processing Unit (GPU) demonstrates the hardware essential for training and running generated AI applications.
Since the launch of ChatGpt, Nvidia's stock price has risen more than 10 times. Today, it is the most valuable company in the world, with a market capitalization of over $4 trillion.
However, the next three years look different from the previous three years. Also, based on current valuation and competitiveness, one stock of AI stock is poised, which is better than the major GPU manufacturers through 2028.
Image source: Getty Images.
Can Nvidia stock continue to climb?
Nvidia's financial results over the past three years have been incredible. And as the generative AI boom continues, it continues to grow incredibly high revenues and revenue.
The company reported a 73% increase in data center revenue in the first quarter of 2026 as large tech companies were trying to equip their data center servers with the latest NVIDIA chips. As a result, the company's earnings per share increased by 33%. However, its EPS numbers included a $4.5 billion reduction in H20 GPU inventory for the Chinese market. Without that, earnings per share would have increased by 57%. President Trump has since lifted the US ban on selling to China. As part of that policy shift, Trump is requiring the company to pay Washington 15% of China's sales, but it means that writing can be revoked as H20 is valued again.
Nvidia still faces headwinds in its continued growth, though. Competitors are beginning to make progress by catching up to Nvidia with their own AI accelerator chip. AMD (AMD) 2.49%)) Recently, we announced the MI400X, which competes with Nvidia's Blackwell Ultra Platform. The MI400X is slower than the Rubin architecture chips NVIDIA expects to launch in the second half of 2026, but it has a major advantage in memory capacity, which is a key bottleneck for AI training. Still, some data center customers could bring a portion of their business to AMD for price performance. It also suppresses the largest GPU suppliers.
On top of that, all the biggest NVIDIA customers are developing custom AI accelerators. In the long run, custom silicon can reduce the demand for Nvidia's general-purpose GPUs for AI training and inference, at least among high-tech giants. That said, small businesses may rely on cloud providers that provide access to NVIDIA GPUs for their AI processing needs.
These headwinds make Nvidia's forward P/E ratio difficult to justify justification of 40. Stocks deserve to trade at premiums, but investors who are expected to be able to continue to produce results like they have last few years may be overestimating their position in the market. As a result, I expect that valuation multiples will be compressed over the next few years.
AI Stock Possibly to grow faster than nvidia
Nvidia continues to be a clear winner from the AI spending boom, but not all trended businesses have that clear potential. For some companies, AI is just as threatening as an opportunity. One such business Adobe (Adbe) 2.43%)).
Adobe's Creative Cloud Suite is the leading software for creative professionals. Generated AI makes it easier for anyone to create and edit photos, images, and graphics, so many people hope that the technology they are developing will undermine the need for Adobe tools. Meanwhile, Adobe has invested in building its own AI model, Firefly, and trained it with a library of stock images and videos. Firefly can generate images and videos, enabling creatives to make the most of Adobe's powerful toolset.
Today, the market overwhelmingly sees the threat of AI as surpassing Adobe's profits. Stocks have fallen by more than 40% from the all-time high we touched on at the beginning of 2024, but the sale could be a major opportunity for investors.
Creative professionals who do not use Adobe software put themselves at a disadvantage. It is industry standard. Designers, photographers, or videographers looking for work were familiar with how to make the most of Adobe's creative cloud, as the industry is using it. This means there is a very high switching cost to get away from it. This should help Adobe maintain its core customer base.
Plus, Adobe is built on a strong customer base across its creative, document and digital experience platform. The software's built-in generation AI tools increase revenue per user and improve retention. The Firefly app, released in June, is believed to have portrayed many new users in the Adobe franchise. This concluded May 30th, with first subscribers increasing by more than 30% year-on-year in the last fiscal quarter.
Overall, management expects revenue from AI products to more than double this year, but remains a small fraction of the company's total revenue. However, given the indirect effect, there is a clear effect. The company reported 12% growth in its annual recurring revenue for the previous quarter, with 11% expected for the fiscal year. Despite already high margins, growing into AI investment should expand over time.
Management uses stable free cash flow generated by Adobe's subscription revenue to buy back the stock. It bought back 8.6 million shares in the last quarter. Supported by a steady shrinking shares, the company should be able to generate consistent double-digit percentage revenues over the next three years to generate revenue per share. However, for now, the stock is trading with just 17 times the revenue. As Adobe continues to grow consistently, we hope that multiples will expand over time. This will ensure that stocks will surpass Nvidia until 2028.
