We recently published a list of 10 Best-Performing S&P 500 Stocks in the Last 3 Years. In this article, we are going to take a look at where NVIDIA (NASDAQ:NVDA) stands against other best performing S&P 500 stocks in the last year.

The past three years have been a bit of a roller coaster ride for the stock market. We saw how the pandemic wrecked several industries’ balance sheets and supply chains. Following the global vaccination drive, economies around the world and in the US opened up with a vengeance, resulting in huge stimulus checks. This, along with the energy and food-price shock and disrupted supply chains, was blamed for the persistently high inflation, which peaked at 9.1% in June 2022.

The Fed had already started hiking interest rates to ease inflation and work towards a soft landing, with the first hike coming in March 2022. By July 2023, the central bank had raised it to 5.25-5.50%, making borrowing all the more challenging.

The tech industry had kept the momentum from 2020 lockdowns well into 2021. The largest tech companies out of the 500 biggest companies trading in the US grew by an average of 33% from the start of 2021 to the end.

However, the tech industry was heavily impacted by the rate hikes that followed in 2022. This resulted in the large-cap aggregate tech indices losing nearly 29% of the gains made in the year prior, as prospects for growth became bleak. The upper percentiles of the energy industry in market cap had a similar run in 2021 but remained immune to the economic downturn that followed in 2022, posting gains of 59% for the year.

The aggressive rally in the energy industry resulted from a combination of supply-chain disruptions, OPEC production cuts, the Russia-Ukraine war, and the revision of energy sourcing in Europe, directing much of the energy capital inflow to the US from the continent.

Coming back to tech – the industry wouldn’t stay on the sidelines for long. The start of 2023 to the end saw the large-cap US-traded tech equity grow by 38.6%. At the core of the resurgence was the AI-led boom combined with semiconductor supply chains that had recovered substantially by then. Other factors included CHIPS and Science Act, improved efficiency in the industry, and a rate-hike slowdown.

What’s Ahead for the Market?

The US economy looks to be on schedule for a soft landing, according to a Financial Times’ survey of economists. This is on the back of the Fed’s rate reduction of 50 basis points in September 2024, which, as noted by the CFO of a large US bank Denis Colman, is a signal towards a soft landing. This is not a sure shot, however, since some experts remain wary and continue worrying about a recession.

For instance, Piper Sandler’s Chief Global Economist Nancy Lazar noted that the “jumbo” rate cut by the Fed is reminiscent of the similar Fed policy easing of 2001 and 2007, which couldn’t avert the problem.

However, according to analysts, the case for a soft landing appears to be justified given the September jobs report and other improving indicators. The September report by BLS shows that the non-farm payrolls grew by 254,000 for the month, exceeding economists’ estimates by 41%. Moreover, the July and August reports, which had spooked some economists, were also revised by a combined 72,000 new hires, which wasn’t without historical precedent.

Further, grocery prices, adjusted for growth in real wages, are back to the pre-pandemic levels. It took 3.59 hours of work to afford a week’s worth of groceries in November 2019 and took 3.57 hours of work to afford them in September 2024.

Moving ahead, Rob Rowe, Regional Research Director and Head of Global Strategy at a large US bank is ‘tactically bullish’ on the back of continuing tech recovery and the markets “pricing in a soft landing”. They expect at-least 25 basis-point rate cuts at each Fed meeting through year-end.

With regards to tech industry, their outlook suggests selectivity. In response to a question about their outlook on the tech industry, they said:

“I think we have to be selective here. We like Semis as a recovery play but we’re kind of underweight on software.”

Rowe has a bearish outlook on oil, given geopolitical variables don’t change in a way that leads to oil prices shooting up.

Methodology

For our list, we have picked stocks from the index in question that have had the highest 3-year annualized returns and we ranked them as such, in order of their 3-year CAGR.

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).

NVIDIA Corporation (NASDAQ:NVDA) 

3Y CAGR: 82.08%

NVIDIA (NASDAQ:NVDA), for all intents and purposes, is considered the driving force behind the AI boom, especially on the hardware side. Nvidia’s core business revolves around designing Graphic Processing Units (GPUs). The company’s biggest market is the gaming industry since GPUs are almost essential for high-performance rendering due to their parallel processing capabilities. As it turns out, GPUs are also incredibly useful for training AI models for the same reason, since AI models require a lot of matrix calculations simultaneously.

It goes without saying that Nvidia isn’t the sole GPU designer but what put it at an advantage over its competitors is its proprietary parallel computing platform – CUDA. Having a GPU market share of 70.5% as of 2016, Nvidia recognized the need for a programmable architecture very early since programming parallel processing is recognized as notoriously difficult. The CUDA platform is now supported by a library of thousands of specific applications, which makes it hard to compete with Nvidia in the space of parallel programming platforms. This, coupled with the explosive demand for GPUs for training AI models, resulted in NVDA becoming the most valuable company in the world in June 2024 before Apple regained the top spot for itself. NVDA grew at an annualized rate of 82% over the past three years, and has gained nearly 212% over the past year and 184% year-to-date.

Nvidia’s highly anticipated GPU – Blackwell – is expected to offer substantial inference performance gains over its previous GPUs, and is already experiencing a high level of demand from hyperscalers. The GPU will be rolled out in Q4, 2024, but has already been booked out for 12 months.

This is what Stacy Rasgon, a Bernstein senior analyst, had to say about NVIDIA (NASDAQ:NVDA) in one of the latest CNBC programs:

“People are getting excited about the story again as we approach earnings, year-end, and next year when the new platform with Blackwell starts to ramp up. By all indications—based on supply chain checks and everything else—demand for this product looks off the charts.”

The analyst believes the stock is trading at a discount:

“It’s much cheaper today than it was before the run started a year and a half ago. The stock has risen significantly, but earnings have increased even more than the stock.”

Overall, NVDA ranks 2nd on our list of best performing S&P 500 stocks in the last year. While we acknowledge the potential of the best-performing S&P500 stocks in the Last 3 Years, our conviction lies in the belief that 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.