March 8 witnessed a rollercoaster ride in the stock market. The shares of Nvidia (NASDAQ: NVDA) catapulted to a record high of $974, only to plunge over 10% and settle at $875.28 by day’s end. At its zenith, Nvidia was within striking distance, less than 9% away from eclipsing Apple (NASDAQ: AAPL) in market capitalization. However, by the closing bell, this goal seemed over 20% out of reach.
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Earnings Propel the Nvidia Narrative
Nvidia is not merely a speculative growth stock riding on optimistic fervor and avarice. The core of its upsurge lies in exceptional business performance, marked by soaring sales, earnings growth, and expanding margins.
NVDA Revenue (TTM) data by YCharts
The primary apprehension surrounding Nvidia is its valuation. With a price-to-earnings (P/E) ratio based on trailing 12-month earnings at 73.6, some may deem it lofty. Yet, analyst projections foresee Nvidia’s earnings per share (EPS) more than doubling from $11.90 in fiscal 2024 to $24.50 in fiscal 2025, paving the way for a more palatable forward P/E of 35.7.
In the quest to trump Apple in market cap, Nvidia could rely on investor sentiment inflating the stock price. However, the more pragmatic route would be fulfilling or even exceeding earnings expectations.
Nvidia is slated to unveil its fiscal 2025 results in late February or early March next year. Should it hit the $24.50 earnings mark, the stock could soar, especially if prospects for further growth loom large. A business that doubles its earnings with healthy margins while spearheading the AI revolution merits a premium valuation, conceivably double the P/E of the S&P 500.
Nvidia may warrant the loftiest P/E among the Magnificent Seven companies, yet it teeters on a precipice of soaring too swiftly.
Choosing Apple in the Doldrums: A Stroke of Genius
Amid Nvidia’s seeming path to glory, Apple emerges as the wiser investment. While Nvidia may offer a superior short-term trade, Apple’s allure lies in its potential for sustainable wealth accumulation over the long haul.
Apple grapples with negative market sentiment, entrenched to a degree where it trades at a discount to the S&P 500. Such a discount is typically reserved for instances of critical missteps, a disparity perhaps unwarranted by Apple’s current challenges.
In essence, Apple’s recent stock woes stem from its failure to herald a major AI monetization coup akin to Nvidia, Microsoft, or Meta Platforms. Flagging iPhone sales in China and tepid overall growth further dent Apple’s litany of woes. However, Apple has weathered similar storms in the past and triumphed against competition.
A Piper Sandler survey in fall 2023 revealed staggering iPhone ownership statistics among Gen Z, underpinning Apple’s firm foothold in the US market and robust international growth trajectory.
Investors ought to refocus from market rivalries onto Apple’s potential to exploit current devices through service and AI avenues. Apple’s success hinges on bolstering the depth (services) and breadth (diverse product portfolio) of its ecosystem, fostering increasing consumer expenditures through enhanced products.
Apple faces mounting pressure to unveil game-changing innovations this summer to rev up iPhone demand and upgrades. Even absent groundbreaking revelations, Apple’s healthy cash reserves afford ample room for strategic acquisitions, shareholder returns, all fortified by a rock-solid balance sheet.
Apple’s brand cachet, market supremacy, and robust financial health confer it the luxury of maneuvering space to make amends. Cognizant of not misleading investors, Apple primarily announces breakthroughs once products or services are primed for market entry.
Apple’s Risk-Reward Balance Trumps Nvidia’s
Nvidia shoulders the weight of soaring earnings estimates to sustain its ascent. Bolstered by buoyant earnings growth and expanded valuations, the stock could ride a favorable trajectory should fiscal 2025 forecasts materialize as anticipated.
Analyzing Nvidia and Apple: A Tale of Growth and Stability
The Growth Trajectory of Nvidia vs. Apple
A turbulent year has put investors on edge about the future of Nvidia and Apple. While Nvidia’s breakneck growth may continue for the time being, signs of a downturn in customer spending could throw a wrench in its upward trajectory. On the other hand, Apple stands as a beacon of value with a clear path to win back the hearts of Wall Street.
Predicting Future Valuations
Speculation abounds about which tech giant will reign supreme in the coming years. While Nvidia might briefly surpass Apple in value according to some market pundits, a shift is expected. Three to five years down the road, Apple is poised to reclaim its throne as the more valuable and safer investment choice compared to the high-risk, high-reward game of Nvidia.
Investment Outlook and Risk Assessment
Investors are urged to tread carefully in the increasingly volatile tech market. Nvidia’s rollercoaster ride of high stakes and potential windfalls paints a stark contrast to Apple’s stable, medium-reward investment profile. Watching Nvidia’s quarterly reports becomes a ritual for those believing in sustained demand for its products. However, the days of mind-bending gains with Nvidia may be numbered, as more modest returns are forecasted.
Considerations before Investing in Nvidia
Before diving headlong into Nvidia stock, it is wise to pause and reflect. Advice from the Motley Fool Stock Advisor paints a cautionary picture, indicating that Nvidia is not part of the list of the top 10 stock picks with potential for monstrous returns. The allure of Nvidia’s past glory should not blind investors to the steady performers waiting in the wings.
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*Stock Advisor returns as of March 11, 2024