We recently published a list of 8 Most Profitable Tech Stocks Right Now. In this article, we are going to take a look at where NVIDIA (NASDAQ:NVDA) stands against other most profitable tech stocks right now.
Technology Sector’s ‘High Bar’
In an interview with CNBC on October 10, Drew Pettit, Director of US Equity Strategy at Citi Research, shared his thoughts about the upcoming earnings season and its potential impact on the market. With the Dow and S&P 500 reaching new closing highs, Pettit raised the question of whether earnings would justify the current valuations. The technology sector has been on a tear, with many software names running up significantly in recent weeks. However, Pettit’s warning suggests that investors should be cautious about getting too caught up in the hype. He noted that when there’s a high bar, investors should be prepared for potential disappointments.
Pettit sounded a note of caution when it came to the tech sector, particularly software stocks. He noted that software has the highest bar within tech, not just in terms of growth expectations but also in terms of monetization. Many software companies are not seeing the expected growth in the next three years, which is already priced into their valuations. This mismatch between expectations and reality could create volatility in the sector.
In terms of specific guidance, Pettit expects companies to use the current uncertainty as an excuse to walk down expectations for Q4. This is a typical trend in US markets, where companies tend to set low expectations and then beat them. Pettit advises investors to focus on companies that can deliver on their promises.
Overall, Pettit’s comments suggest that investors should be cautious about the tech sector, particularly software stocks, and focus on companies that can deliver on their promises. He also emphasizes the importance of looking beyond the current quarter and focusing on long-term growth prospects.
Tech Sector Will Thrive Despite Short-term Challenges
Dan Flax, Senior Research Analyst at Neuberger Berman is bullish on the technology sector, with a focus on companies that are well-positioned to capitalize on the next generation of workloads and are executing well on their product cycles. Flax expects concerns about cyclical headwinds to remain a factor but also sees select opportunities in the sector. He also noted that enterprise customers are looking to adjust to changes in the landscape cyclically and invest in transforming their organizations, which will drive technology spending in the second half of the decade.
As investors navigate the current market landscape, it is essential to approach the tech sector with a sense of caution. While the sector has been experiencing a significant upswing, investors should focus on companies that have a proven track record of delivering on their promises, rather than getting caught up in the hype surrounding certain stocks.
Our Methodology
To compile our list of the 8 most profitable tech stocks right now, we used the Finviz and Yahoo stock screeners to compile an initial list of the 40 largest technology companies by market cap. From that list, we narrowed our choices to companies with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds, as of Q2 of 2024.
Why do we care about what hedge funds do? 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).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
TTM Net Income: $53.00 Billion
5-Year Net Income CAGR: 80.81%
NVIDIA (NASDAQ:NVDA) is a global leader in graphics processing units (GPUs) and has been at the forefront of AI, gaming, and data center technology. The company’s GPUs are widely used in gaming, deep learning, and high-performance computing. NVIDIA’s (NASDAQ:NVDA) AI and machine learning solutions have also been adopted across various industries such as healthcare, automotive, and finance. NVIDIA’s (NASDAQ:NVDA) customers include Amazon Web Services, Google Cloud, and Tesla.
NVIDIA (NASDAQ:NVDA) is poised for continued growth and success, driven by its strong position in the data center market and its upcoming Blackwell chip. Blackwell is high in demand from companies such as OpenAI, Microsoft, Meta, and other firms building AI data centers to power products. Blackwell is expected to cost between $30,000 and $40,000 per unit. The Blackwell GPUs are already being released to data centers and industrial customers for artificial intelligence applications and will be available for consumers in 2025.
In an interview with CNBC, CEO Jensen Huang said that “Blackwell is in full production and demand for Blackwell is insane” and that “Everybody wants to have the most and everybody wants to be first”. NVIDIA’s (NASDAQ:NVDA) leadership in the field of accelerated computing and generative AI is also a major driver of its growth prospects. Management has emphasized the importance of these two computing transitions, which are expected to drive long-term sustainability in capital expenditure spending.
Additionally, NVIDIA (NASDAQ:NVDA) has growing opportunities in the enterprise AI wave, automotive, and healthcare segments are expected to drive further growth, as the company’s products and solutions become increasingly adopted in these industries.
In Q2, global spending on cloud infrastructure grew 19% year over year to $78.2 billion, according to Canalys. Hyperscalers are expected to spend about $160 billion in 2024 on AI infrastructure. Analysts forecast the company’s earnings will increase by 81.88% this year and have a consensus Buy rating at a target price of $148.23, which implies a 9.48% increase from its current levels. With its strong position in the data center market and its growing opportunities in new industries, NVIDIA (NASDAQ:NVDA) is well-positioned to capitalize on these trends and drive further growth.
Overall, NVDA ranks 3rd on our list of most profitable tech stocks right now. While we acknowledge the potential of NVDA to grow, 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.
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Disclosure: None. This article is originally published at Insider Monkey.
