In this piece, we will take a look at the top growth stocks with the highest projected EPS growth rates according to Bank of America (BofA).
For the stock market, if there’s one thing that can be said with some certainty, it’s that earnings and revenue growth drives share price performance. This is because a firm’s stock price is a reflection of investor estimates of its future market potential. Firms that are believed to gain market share in the future often see their share price surge in the present as investors tailor their portfolios to try to get an early position in some of the biggest names of tomorrow.
In fact, we don’t have to dig too deep to see this principle in action. The clearest example of it is in the stock of the AI chips company that’s Wall Street’s favorite AI stock so far. Its stock is up 199% year to date, 235% over the past twelve months, and 887% since the start of 2023. While all these returns are something that most–if not all–company executives would give an arm and a leg for, to see our principle in action, we’ll have to dig deeper into the 887% share price gain.
Narrowing down our analysis to this stock’s performance in 2023–from the start and to the end of the year–its shares gained 239%. During the first half, they gained 189.5% and during Q1, the stock was up 90%. So, the shares’ performance in Q2 has proven crucial as the starting point of a rally that has so far yielded an 887% share price appreciation. During Q2, the stock was up 52%, driven by the fact that on May 24th, 2023 (during the Q1FY24 earnings), the firm’s CEO stunned investors when he shared that “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”
This meant that CEO Jensen Huang believed that in the future, businesses would spend as much as $1 trillion on his company’s products. Investors were ecstatic and they piled into the company to send its shares soaring by 24.6% between May 19th and May 26th. In this company’s case, the CEO’s optimism was also met by cold, hard results. During the same Q1, the firm’s data center business division revenue jumped by 14% annually, in a sign that foretold the growth story of the next quarters. Mind you, this fiscal Q1 was only the second quarter following OpenAI’s public ChatGPT release, so the AI wave that solidified in Q4 2024 was in its infancy.
These hard results saw the firm annually grow its revenue by 101%, 206%, 265%, 262%, and 122% in its Q2FY24, Q3FY24, Q4FY24, Q1FY25, and Q2FY25, respectively. The top line growth has been accompanied by bottom line profits also jumping by triple digit percentages in all of the quarters. The highest reading was for Q2FY24 when its non-GAAP net income jumped by 843% year-over-year.
Thus, it’s safe to say that growth is rewarded by the stock market. Yet, the high investor expectations for growth stocks also mean that they are punished harder in case they fail to meet expectations. Research from the University of Michigan analyzed data for 13 years covering consensus earnings forecasts, quarterly earnings, stock prices, market to book ratio, and price to earnings ratio to check whether growth and value stocks perform similarly if they fail to meet earnings expectations.
Their results show that growth stocks tend to fall more than value stocks when it comes to negative earnings surprises. The researchers add that the underperformance is typically before the earnings are announced since growth stocks typically preannounce their negative earnings surprise. A descriptive analysis of their data also shows that cumulative stock returns for the days between two earnings cycles are higher for low growth stocks over high growth stocks. For the lowest growth stocks, the cumulative returns for all firms analyzed were 0.66%, while those for firms with negative and positive earnings surprises were -3.57% and 5.44%, respectively. For the high growth stocks, cumulative returns for all firms were -0.58%, and the returns for those with negative and positive earnings surprises were -7.32% and 6.32%, respectively.
The research concisely sums up the potential of investing in growth stocks and the accompanying risks. Returning to our GPU designer, while right now it’s at the center of the AI buzz, back in 2017 and 2018, it was at the center of the Bitcoin rush since gaming GPUs could also be used to mine cryptocurrencies. However, between mid-December 2017 and mid-December 2018, Bitcoin’s price dropped by 83%. For the firm’s quarter that ended in January 2019, this led to its gaming GPU revenue dropping by 45% year-over-year and 46% sequentially. This was because the crypto sector had over ordered GPUs, but as Bitcoin prices fell, mining became unprofitable and the over-ordering led to a glut in the market. Looking at the firm’s post split stock price, this led to the stock falling by 53% between October and the end of December 2018.
With these details in mind, let’s take a look at some stocks that seeing some of the highest projected EPS growth rates.
A person looking intently at a broker’s screen full of stock information, implying the company’s stock market expertise.
Our Methodology
To make our list of BofA’s top growth stock picks, we used the bank’s latest list of stocks that are rated Buy, have an EPS surprise rating, and the highest projected growth rates for the next five years. The stocks were ranked by their projected EPS growth rates.
For these stocks, we have also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders In Q2 2024: 48
Projected EPS Growth Rate: 11.2%
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is one of the most well-known media and entertainment companies in the world. It has a large market share and following, thanks to well-known brands such as CNN, TNT, HBO, and its Motion Pictures Group. Looking at Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s financials, its movie studios and direct-to-consumer businesses account for 26% and 25% of its revenue.
The Networks division is the firm’s biggest segment, as it brought in $10.3 billion in revenue out of Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s $19.7 billion in H1 sales. Consequently, Networks is key to its success, and the firm has to ensure that it retains viewership in today’s world where social media, streaming, and alternative media are growing in popularity for news and entertainment. Warner Bros. Discovery, Inc. (NASDAQ:WBD) can leverage its scale to sign lucrative content deals to keep viewers engaged. It can also expand its presence globally, and the firm’s stock surged 10% in September after it announced a deal with Charter Communications to Discovery Max and Discovery+ to Charter customers free of charge.
Longleaf Partners mentioned Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q1 2024 investor letter. Here is what the fund said:
“Warner Bros Discovery (WBD) – Media conglomerate Warner Bros Discovery was also a detractor in the quarter. The market disliked the company’s lack of guidance for 2024. While there are tentative signs that the advertising market is slightly improving, we understand why the market remains in show-me mode on this part of the business. The Warner Bros Studio has gone from a big hit with the Barbie movie last summer to some misses lately. As we have discussed before, April 2024 represents the two-year anniversary of Warner Bros and Discovery merging. After this date, the company will have more options to go more on offense. Unfortunately, this is overlooked in the near term by daily Paramount headlines. We are ready to see how the rest of this year plays out. WBD still generates substantial FCF and is de-levering its balance sheet rapidly. The company remains dramatically undervalued today, but we need to see more positives before increasing our position further”
9. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders In Q2 2024: 165
Projected EPS Growth Rate: 19%
Alphabet Inc. (NASDAQ:GOOGL) is one of the biggest technology companies in the world. It relies on advertising to generate most of its revenue, with $112 billion of its $144 billion in H1 2024 sales coming through advertising on Search, YouTube, and ads through the Google Network. Within this, 73% of Alphabet Inc. (NASDAQ:GOOGL)’s advertising revenue was through Search, which makes the product indispensable to the firm. Its dominance in the search engine industry has also allowed the company to establish a fortress balance sheet as is evident through its $11 billion in cash and equivalents as of the latest quarters. This has allowed Alphabet Inc. (NASDAQ:GOOGL) to focus on cutting-edge technologies such as artificial intelligence. It is one of the few AI companies in the world that not only has access to a foundational model but that also provides computing resources to other companies. Consequently, Alphabet Inc. (NASDAQ:GOOGL) has a wide moat in the emerging technology. However, it remains vulnerable to changing dynamics of search engines through antitrust action and disruption.
Patient Capital Management mentioned Alphabet Inc. (NASDAQ:GOOG) in its Q2 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
8. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders In Q2 2024: 219
Projected EPS Growth Rate: 21.6%
Meta Platforms, Inc. (NASDAQ:META) is the biggest social media company in the world. Its 3.2 billion user base means that the firm is the go-to platform for advertisers. Meta Platforms, Inc. (NASDAQ:META)’s dominance in social media advertising has enabled the firm to accumulate sizable resources which enable it to develop leading edge technologies such as artificial intelligence. As of the latest quarter, the firm had $32 billion in cash and equivalents. These allow it to establish sizable data centers to train AI, and Meta Platforms, Inc. (NASDAQ:META) is one of the few firms in the world that has developed its foundational AI model. Called Llama, it allows the firm to provide AI software to others to build their products. It also enables Meta Platforms, Inc. (NASDAQ:META) to blend AI into its products for advertisers by enabling them to use AI for features such as ad campaigns and customer support. It also enables the firm to provide AI features, such as image editing, to users with the hope of monetizing it in the future.
Polen Capital mentioned Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter. Here is what the fund said:
“Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
7. Dow Inc. (NYSE:DOW)
Number of Hedge Fund Holders In Q2 2024: 32
Projected EPS Growth Rate: 32.7%
Dow Inc. (NYSE:DOW) is a diversified chemical company that is one of the biggest of its kind in the world. The firm serves the needs of industrial, consumer goods, construction, and other industries. Its $43 billion in trailing twelve month revenue has enabled Dow Inc. (NYSE:DOW) to amass sizable resources, as evidenced by its cash and equivalents of $3.3 billion. Its exposure to construction, transportation, and other markets mean that Dow Inc. (NYSE:DOW) is sensitive to economic conditions, as it thrives when economic output is robust. As of H1 2024, 50.4% of Dow Inc. (NYSE:DOW)’s $21.7 billion in revenue came from its packaging and hydrocarbon business. Geographically, the firm has higher exposure to Western markets. $7 billion of its H1 revenue was from Europe where the prolonged economic slowdown has meant that Dow Inc. (NYSE:DOW) has struggled. The firm has also struggled in the US due to trouble at a plant in Texas–and summing it up–its fortune is tied closely to the resumption of economic activities.
Dow Inc. (NYSE:DOW)’s management shared its thoughts on the economy during the Q2 2024 earnings call:
“Moving to slide eight, our expectations for 2024 reflect a slower pace of recovery in certain end markets. Dow is positioned to capture more than $3 billion in EBITDA upside as we return to mid-cycle earnings levels. We are encouraged by the positive top line signals across our portfolio. This is demonstrated by our year-over-year volume improvement in the last three quarters, as well as price stabilization across the entire enterprise over that same period. In packaging especially plastics, we anticipate supply demand fundamentals to continue improving as the recent polyethylene capacity builds in North America have been fully absorbed by growing global demand. We’re also starting to see rationalization of higher cost assets, particularly in Europe.”
6. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders In Q2 2024: 103
Projected EPS Growth Rate: 34.4%
Netflix, Inc. (NASDAQ:NFLX) is the biggest media streaming company in the world. With 282.7 million subscribers under its belt as of September 2024. Its reliance on subscribers means that it has to focus on customer retention and user monetization to drive its share price higher. Consequently, it was unsurprising that Netflix, Inc. (NASDAQ:NFLX)’s stock rose 4.45% after the firm’s third quarter of 2024 earnings saw it add 5.1 million subscribers and beat analyst estimates by more than a million. Netflix, Inc. (NASDAQ:NFLX) also delivered on the revenue and earnings front, with its $9.93 billion revenue and $5.40 in EPS beating analyst estimates of $9.77 billion and $5.12. However, Netflix, Inc. (NASDAQ:NFLX)’s Q3 subscriber additions were lower than the year ago quarter’s 8.76 million, and with management now set to discontinue sharing subscriber count, investor sentiment will depend on Netflix, Inc. (NASDAQ:NFLX)’s revenue and cost control.
Ensemble Capital mentioned Netflix, Inc. (NASDAQ:NFLX) in its Q1 2024 investor letter. Here is what the firm said:
“The rapid recovery of Netflix’s subscriber growth has shocked investors who drove the stock down to a price of just $166 in May 2022. While at the time, bearish investors were declaring the company’s growth days were behind it, instead the company added a remarkable 13.1 million new subscribers in the most recent quarter. This was the single largest quarterly subscriber addition other than the large gains experienced during the first quarter of COVID. For all of 2023, the company added nearly 30 million new subscribers, making it the largest annual gain in Netflix history other than the first year of COVID.”
5. The Progressive Corporation (NYSE:PGR)
Number of Hedge Fund Holders In Q2 2024: 89
Projected EPS Growth Rate: 49.2%
The Progressive Corporation (NYSE:PGR) is a home and auto insurance products provider. Its shares are up 55.5% year to date, and the stock’s success depends on the firm’s ability to manage expenses, grow premiums, and earn investment income. With interest rates set to lower over the next year, The Progressive Corporation (NYSE:PGR)’s investment income is expected to take a hit. Consequently, the narrative is focused on the firm’s ability to control its costs especially since premium increases in insurance over the past couple of years have constrained the industry’s ability for further hikes. The Progressive Corporation (NYSE:PGR) is also spending heavily on marketing in order to grow the top line by expanding market share. For the short term, this can stress its expense ratio.
Middle Coast Investing mentioned The Progressive Corporation (NYSE:PGR) in its Q3 2024 investor letter. Here is what the fund said:
“Progressive Insurance (NYSE:PGR) is the best example of both a macro and micro transition. Used car repair cost inflation (macro) hurt its profitability. It was early in raising prices to deal with that, and has been growing new policies in force much faster than competitors. As it has overcome the cost inflation issue, its profits have soared, and should continue to grow. The stock price has doubled in the last 14 months.”
4. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders In Q2 2024: 100
Projected EPS Growth Rate: 50.6%
Eli Lilly and Company (NYSE:LLY) is a mega pharmaceutical company that sells diabetes, obesity, and cancer medicines. These expose it to some of the hottest markets of the pharma industry and its success in the obesity market has also translated into share price tailwinds. LLY shares are up 53% year-to-date However, with weight loss drugs now being a key part of its hypothesis, any threat from competitors means that the shares are hit hard. This was the case between mid-July and early August when LLY stock bled 19% after investors reacted to favorable weight loss drug developments from Roche and Viking Therapeutics. To ensure that it remains a leading player in the market, Eli Lilly and Company (NYSE:LLY) is currently working on Orforglipron, which is cheaper and easier to produce than current treatments. This is key especially as generic weight loss drugs can further dilute the market.
Baron Funds mentioned Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter. Here is what the fund said:
“In biopharmaceuticals, we remain bullish on the market opportunity for new diabetes and obesity medicines. In June at a medical meeting, the principal investigators of the SURMOUNT-OSA trial presented the full data which demonstrated that Eli Lilly and Company’s Tirzepatide reduced obstructive sleep apnea in adults with obesity by up to 62.8%, and up to 51.5% of participants met the criteria for disease resolution. This impressive data set paves the way for Tirzepatide to be used as a treatment for obstructive sleep apnea in overweight and obese individuals.”
3. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders In Q2 2024: 145
Projected EPS Growth Rate: 53.2%
Uber Technologies, Inc. (NYSE:UBER) is the dominant player in the US’ ride-sharing industry. It commanded a whopping 76% share of US ride-share spending as of March, ensuring that the space is effectively a duopoly when combined with smaller rival Lyft’s share of 24%. Uber Technologies, Inc.’s (NYSE:UBER) also has been growing its market through new areas such as urban air mobility and targeting tertiary markets via food delivery and other services. The firm has been making a lot of progress on these fronts lately. It has partnered up with GM to start autonomous ride sharing next year and debuted a pilot shuttle project to transport people to the airport in New York City. Uber Technologies, Inc. (NYSE:UBER) is also an investor in Joby Aviation–a firm that is developing electric vertical take off and landing (eVTOL) aircraft–which provides it with inroads into urban air mobility.
RiverPark Advisors mentioned Uber Technologies, Inc. (NYSE:UBER) in its Q1 2024 investor letter. Here is what the fund said:
“UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.4 billion of unrestricted cash and $4.8 billion of investments, the company today has an enterprise value of $165 billion, indicating that UBER trades at 21x our estimates of next year’s free cash flow.”
2. The Allstate Corporation (NYSE:ALL)
Number of Hedge Fund Holders In Q2 2024: 61
Projected EPS Growth Rate: 53.2%
The Allstate Corporation (NYSE:ALL) is a sizable American home and auto insurance company. It is one of the biggest companies of its kind and commands a sizable asset base of $103 billion. Since The Allstate Corporation (NYSE:ALL) operates in both the auto insurance and home insurance markets, it benefits from the ability to cross sell its products. However, home insurance providers–particularly those with exposure to coastal regions such as Florida–have had to deal with the impact of hurricanes. This was evident in The Allstate Corporation (NYSE:ALL)’s shares, as they tumbled by 6% in October after Hurricane Milton was declared to be a Category 4 storm. That said, a milder climate overall–minus Milton–has helped the firm reduce its catastrophe losses. This has led to the shares being up 36% year-to-date.
Ariel Investments mentioned The Allstate Corporation (NYSE:ALL) in its Q2 2024 investor letter. Here is what the fund said:
“We added property and casualty insurer, Allstate Corporation. A challenging macro-environment, inflation and lower reserve development led to significant underwriting losses across key markets, presenting us with an attractive entry point. Looking ahead, we expect the strong pricing environment, coupled with lower inflationary pressure and future premium growth to yield upside for shares. Additionally, management is committed to improving its adjusted expense ratio and recently made upgrades to its claims handling processes to minimize loss development and lower claim severities.”
1. Take-Two Interactive Software, Inc. (NASDAQ:TTWO)
Number of Hedge Fund Holders In Q2 2024: 48
Projected EPS Growth Rate: 60.5%
Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is a New York City-based video gaming company. It is behind some of the most well-known video game brands in the world, such as Grand Theft Auto and Red Dead Redemption (Rockstar Games is owned by Take-Two). Consequently, Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s narrative depends on the firm’s ability to regularly launch video games and increase its bookings over time. The firm is currently preparing to launch GTA VI in 2025, and the game–along with other titles–is responsible for the fact that it is at the top of our list. This is because successful video game titles add to Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s revenue, and apart from GTA, other upcoming titles for 2025 include Borderlands 4, Sid Meier’s Civilization VII, and Mafia: The Old Country. As a result, successful launches tend to create tailwinds for the stock, while consistent delays can create trouble.
During its fiscal Q4 2024 earnings call, Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s provided its outlook for the coming years and the current quarter:
“As development advances, our confidence in the title and its potential commercial impact continue to grow. That said, we are not providing specific guidance beyond fiscal 2025, as our release schedule includes numerous titles each year and even modest shifts can have a significant effect on results in any given period. Our outlook for the lifetime value of our pipeline remains as strong as ever and we expect sequential growth in net bookings in Fiscal 2025, 2026, and 2027. Now, moving onto our guidance for the fiscal first quarter. We project net bookings to range from $1.2 billion to $1.25 billion, compared to $1.2 billion in the first quarter last year. Our release slate for the quarter includes TopSpin 2K25, No Rest for the Wicked on Early Access for PC and NFL 2K Playmakers, all of which have already released, and Star Wars Hunters.
The largest contributors to Net Bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Empires & Puzzles, our hyper-casual mobile portfolio, Match Factory, the Red Dead Redemption series, Words With Friends, and Zynga Poker. We project recurrent consumer spending to increase by approximately 1%, which assumes mid single-digit growth in mobile, flat results for NBA 2K, and a decline for Grand Theft Auto Online. We expect GAAP net revenue to range from $1.3 billion to $1.35 billion. Operating expenses are planned to range from $928 million to $938 million. On a management basis, operating expenses are expected to grow by approximately 14% year-over-year, which is primarily driven by additional marketing for Match Factory, partially offset by our cost reduction program.”
TTWO is one of the top stocks with the highest consensus earnings growth according to BofA. While we acknowledge the potential of TTWO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TTWO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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