We recently published a list of 12 Most Profitable Growth Stocks To Invest In. In this article, we are going to take a look at where NVIDIA (NASDAQ:NVDA) stands against other most profitable growth stocks to invest in.
After the September inflation report, the market did feel a slight bit of panic but it seems to be fading away. After the report, the market expectations for a rate cut shifted, with 79.9% of participants predicting a cut to 450-475 basis points, while 20.1% expect the rates to remain unchanged. It was a change from 32.1% expecting a 50 bps rate cut and 67.9% anticipating a 25 bps cut at the beginning of the month as mentioned in our 8 Most Profitable Blue Chip Stocks to Invest in article.
However, on October 11, the CME FedWatch tool showed that 89.5% of the market now expects a 25 bps rate cut and the rest expect it to remain the same.
Market Corrections Ahead but No Bear Market in Sight
Christian Mueller-Glissmann from Goldman Sachs joined CNBC’s ‘Squawk Box’ to discuss the latest market trends. He believes that the stock market pullback in August could be a warning of more potential corrections, but he does not see a severe bear market ahead. His overall outlook is positive due to a healthy macroeconomic environment, where growth remains stable, inflation is under control, and central banks are starting to reduce rates. These factors create a favorable setting for equities and other risk assets.
He pointed out that while bullish market positioning contributed to August’s setback, the combination of declining inflation and rate cuts allows central banks to cushion against financial shocks, minimizing the risk of a deep downturn.
Mueller-Glissmann highlighted two key reasons for not expecting a major market decline: inflation has significantly dropped, giving central banks more flexibility, and price momentum over the past 6-12 months suggests a strong macroeconomic backdrop. With the labor market improving, he sees no signs of an economic downturn.
His strategy focuses on quality growth stocks that are temporarily undervalued and cyclical value stocks that could recover as the market stabilizes. Regarding inflation, he noted a shift from inflation relief to growth as the main market driver, raising concerns about inflation resurfacing if growth strengthens. However, he remains confident that inflation will stay anchored, and disinflation will continue into the year’s end.
Our Methodology
For this article, we used stock screeners to identify nearly 25 growth stocks above the market cap of $10 billion with a 5-year revenue compound annual growth rate (CAGR) of 30% or above. Next, we narrowed our list to 12 stocks with the highest TTM net income. We also mentioned the hedge fund sentiment around each stock, which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
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).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
5-Year Revenue CAGR: 56.73%
TTM Net Income: $53.009 billion
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) specializes in graphics, computing, and networking solutions, gaining recognition for its powerful graphics processing units (GPUs). While it started in gaming, the company has expanded into professional visualization, data centers, and automotive industries. It is also actively expanding its footing in other major growth industries such as AI and 5G. It tops our list of most profitable growth stocks.
Although the company’s stock fell after its Q2 results, this was expected due to delays in the Blackwell GPU, which will not affect its core design or growth potential. Moreover, the demand for Blackwell GPU is strong as reported by Morgan Stanley. The firm reported that the demand for the company’s Blackwell NVL36/72 systems is so high that they are sold out for the next year.
Wedbush analyst Dan Ives has reiterated that NVIDIA (NASDAQ:NVDA) will greatly benefit from increased spending on AI. He noted that the demand for AI chips is skyrocketing, and expects that the AI infrastructure market could grow tenfold by 2027, with $1 trillion in spending expected over the next three years.
At the March 2024 GPU Technology Conference, CEO Jensen Huang estimated annual spending on data center infrastructure to be around $250 billion, with total spending over the next decade potentially reaching $1 trillion to $2 trillion as countries invest in AI.
While NVIDIA won’t capture the entire $2 trillion market due to competition from AMD and tech giants like Google and Amazon, analysts believe NVIDIA (NASDAQ:NVDA) could secure over $950 billion in market share from 2025 to 2029, making it a leader in the data center sector.
Ithaka Group’s Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
Overall, NVDA ranks 1st on our list of most profitable growth stocks to invest in. While we acknowledge the potential of NVDA as an investment, 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: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.