Along with dividends, Nvidia Corp. stock has returned 162% this year as of Thursday. It has also more than tripled in value from a year ago.
As an investor, does this mean it’s too late for you to join the party? It could. In its place, though, the stocks below may be a better deal.
On the other hand, this is all up to you. There isn’t much competition for Nvidia NVDA, +1.75% yet when it comes to graphics processing units (GPUs) that data centres are using to help their corporate clients build new AI technologies. How long could this last?
Greg McCullough, co-manager of the Putnam Large Cap Growth Fund PGOYX, says, “This is the biggest question the market has.” in an interview with MarketWatch last month, McLough said that investors had been worried a year ago that Nvidia might not be able to keep up its amazing growth rate. “That worry is over now,” he said.
In the same interview, McCullough’s coworker Richard Bodzy said that he thought there would be more competition, but that Nvidia should be able to keep its top spot because it had a “first-mover advantage,” was already in the market, and was developing new technologies. Not only that, but he also said that the Putnam Large Cap Growth Fund had shares in Advanced Micro Devices Inc. AMD, -0.17% and Broadcom Inc. AVGO, +3.34%.
Nvidia’s sales for the fiscal quarter that ended on April 28 were $26.04 billion, up 18% from the previous quarter and 262% from the same time last year. The company is pretty much the only one making new GPUs, so the year-over-year comparison might not mean much.
The stock price of Nvidia has gone up a lot because of how quickly the company is growing. There are different ways to figure out how much a stock is worth. One way to do this is to divide the current price by the average prediction of the next 12 months’ earnings per share. Based on this, it looks like Nvidia’s stock is pricey. We can compare that ratio to the weighted forward price-to-earnings ratio for the S&P 500 SPX, though, to see what it really means:
| Company or index | Forward P/E | Forward P/E one year ago | Year-over-year increase in rolling 12-month consensus EPS estimate |
| Nvidia Corp. | 43.3 | 48.3 | 256.4% |
| S&P 500 | 20.8 | 19.1 | 12.4% |
| Source: FactSet | |||
There is the idea that you get what you pay for. A year ago, Nvidia’s stock seemed expensive based on its forward P/E ratio. However, its value has gone down since then, while the S&P 500’s has gone up. To put it another way, Nvidia’s share price hasn’t gone up as fast as its rolling consensus EPS estimate.
Over time, share prices can go up if companies consistently “beat and raise,” which means they beat quarterly estimates made by analysts at brokerage firms. When analysts read reports and hear what companies have to say, they raise their price targets and earnings estimates. Nvidia has been following this pattern for a while now.
Looking at other companies that might compete with Nvidia for growth
Since there has already been a lot of growth, let’s look further ahead. As changed by FactSet, we can use estimates that are agreed upon for calendar years. This makes a consistent set of data, which is helpful since the fiscal years of about 20% of the S&P 500 companies don’t match the calendar.
Let’s look at sales estimates to get a better idea of how fast growth is expected. One-time events or changes to the books can have an effect on profits for any given year. A fast grower might not make money either.
For 480 companies in the S&P 500, FactSet has estimates of how much money they will make each year until 2026. Here are the 20 companies whose sales are expected to grow the fastest from 2024 to 2026, measured by the compound annual growth rate (CAGR). Earnings per share growth rates are also shown in the table, along with forward P/E ratios based on current share prices and estimates for EPS over the next 12 months and those from the previous year. It also has returns for one year with dividends reinvested.
| Company | Ticker | Two-year estimated sales CAGR through 2026 | Two-year estimated EPS CAGR through 2026 | Forward P/E | Forward P/E one year ago | One-year stock return through June 13 |
| Enphase Energy Inc. | ENPH, -3.94% | 33.2% | 47.0% | 32.9 | 28.0 | -28% |
| EQT Corp. | EQT, -2.38% | 26.4% | 84.8% | 16.0 | 11.3 | 16% |
| Nvidia Corp. | NVDA, +1.75% | 25.8% | 26.1% | 43.3 | 48.3 | 233% |
| Moderna Inc. | MRNA, -3.58% | 24.9% | -46.6% | N/A | N/A | -32% |
| Diamondback Energy Inc. | FANG, -2.30% | 24.3% | 3.8% | 9.5 | 6.8 | 50% |
| Advanced Micro Devices Inc. | AMD, -0.17% | 23.6% | 43.1% | 35.7 | 36.2 | 77% |
| First Solar Inc. | FSLR, -6.16% | 21.9% | 47.3% | 16.2 | 20.2 | -12% |
| ServiceNow Inc. | NOW, +2.65% | 20.8% | 21.6% | 49.5 | 52.4 | 63% |
| Take-Two Interactive Software Inc. | TTWO, +0.79% | 20.8% | 83.1% | 42.7 | 31.9 | 23% |
| Teradyne Inc. | TER, -1.75% | 20.7% | 43.3% | 37.2 | 31.0 | 5% |
| Eli Lilly and Co. | LLY, -0.55% | 20.5% | 35.5% | 54.6 | 43.7 | 105% |
| Axon Enterprise Inc | AXON, -0.39% | 20.4% | 21.2% | 57.8 | 58.0 | 40% |
| Tesla Inc. | TSLA, -2.44% | 19.4% | 34.5% | 63.9 | 64.3 | -5% |
| CoStar Group Inc. | CSGP, -1.69% | 18.5% | 86.2% | 81.1 | 60.2 | 32% |
| DexCom Inc. | DXCM, +1.88% | 18.3% | 24.1% | 57.5 | 98.9 | 19% |
| Monolithic Power Systems Inc. | MPWR, -1.28% | 18.1% | 22.5% | 54.7 | 42.1 | 42% |
| Insulet Corp. | PODD, -0.69% | 17.7% | 23.7% | 58.4 | 158.9 | -45% |
| Blackstone Inc. | BX, -0.79% | 17.0% | 20.3% | 22.7 | 17.9 | 54% |
| Lam Research Corp. | LRCX, -0.24% | 16.6% | 21.7% | 28.6 | 24.2 | 95% |
| Palo Alto Networks Inc. | PANW, -0.74% | 16.5% | 12.7% | 51.8 | 47.8 | 43% |
If P/E shows “N/A,” it means that the estimate of earnings in the denominator is wrong.
Third place goes to Nvidia. There is still time to buy Nvidia stock since it was trading at a high P/E a year ago. The stock has gone up a lot since then, and its P/E is now a bit lower in comparison. You are already a big investor if you own shares in an index fund. One such company is Nvidia, which owns 7% of the SPDR S&P 500 ETF Trust SPY.
No one knows how long Nvidia can keep up this growth rate since it controls the GPU market and other companies are putting a lot of money into developing AI technology. Professional money managers can’t tell you what will happen with the AI trend. We think that having strong feelings about AI can help you make a good choice about Nvidia.
AMD is a big company on the list that is expected to have lower P/E than Nvidia but fast sales growth through 2026. AMD’s P/E is also a little lower than it was a year ago. This is another example of how the share price hasn’t gone up as fast as the consensus EPS estimate.
It’s interesting that Tesla is on the list. Today, the stock is down 27%, but that’s not too much of a drop from a year ago. The company is ranked 13th in the S&P 500, and sales are expected to grow at a CAGR of 19.4% over the next two years, until 2026. From what you can see in the table, its earnings are also expected to rise more quickly.
Different types of businesses are on the list. If you click on the tickers, you can see more about each company, such as news coverage, financials, ratings, and price targets.
