In this piece, we will take a look at Ray Dalio’s top 10 growth stock picks with 30%+ revenue growth.
Valuing a stock comes in several shapes and flavors. The most common of these is the price to earnings ratio. Not only is this ratio used to evaluate the premium that investors are paying for a firm right now, but it is also used in tandem with forecast earnings to wager a guess at the future share price. This allows investors to position their portfolio with respect to the market and invest in those stocks that they believe can rise in the future.
However, a stock’s earnings aren’t the only income statement item used in stock valuation. Two other popular approaches are the price to sales or P/S ratio and its peer Enterprise Value to Revenue or EV/Revenue ratio. Both of these look at a firm’s top line performance, and the latter is typically used to value those firms that are in high growth sectors that are ripe for acquisitions.
Among these two ratios, the P/S ratio was popularized by the billionaire Ken Fisher. One of the richest people in the world, Fisher has a net worth of $11.2 billion. He shared his approach to using revenue growth in an article for the American Association of Individual Investors (AAII) in 1984. Fisher shared that the P/S ratio could help investors “ratios measure the popularity of the stock.” This, according to him, was key since it enabled them to sift out those stocks with low P/S ratios as these carried the highest chances of gaining value in the future in case of positive developments. Fisher added that while the P/E ratio was also a measure of popularity, it was too “elastic” and dependent on the various accounting assumptions used to arrive at net income.
A P/S ratio, on the other hand, removed the effects of these “accounting assumptions,” shared Fisher. To back his claims, he outlined that the stocks in the lower quartile (25%) of P/S ratios delivered 64.57% and 56.11% in returns for the bottom seven and nine stocks, respectively which far outstripped the 28.67% in returns of the nine lowest P/E stocks.
However, this piece is about Ray Dalio and not Ken Fisher. Like Fisher, Dalio is also one of the richest people in the world. As of July 2024, Forbes Magazine estimates his net worth to sit at $15.4 billion. Dalio’s hedge fund Bridgewater Associates‘ had listed $19.7 billion worth of investment positions through its SEC filings for 2024’s first quarter. These investments follow his approach of taking a broader look at the global economy and geopolitical environment and seeing which stocks can benefit.
Talking about returns, the past couple of years have been tough for Dalio’s firm. While he is neither Bridgewater’s CEO nor CIO right now, his philosophy is responsible for having set up most of Bridgewater’s most well known products like its Pure Alpha fund. Bridgewater’s Pure Alpha has struggled over the past four years. It has lost 4% during this time period, in an environment where global bonds and the economy have struggled due to high inflation and interest rates.
At the same time, even though Bridgewater has struggled during recent economic crises, it has managed to hold its ground during several crises of the past. For instance, in 2008, the firm delivered 8.7% in gains at a time when the S&P 500 tumbled by 38.5%. It’s times like these that show the true mettle of a hedge fund boss, and during 2018, Bridgewater delivered 14.6% in returns which were in sharp contrast to the hedge fund industry’s average 6.7% in losses. As for the Pure Alpha 11 fund, it has delivered 11.4% in returns between 1991 and 2022. Finally, 2024 seems to be a breath of fresh air for Dalio’s firm too since during Q1 it posted a strong 16% in returns which were 11 percentage points higher than the hedge fund industry’s average 4.59% in returns.
Coming back to revenue growth, while Fisher’s central point when favoring P/S over P/E is the undue effect of accounting on earnings and by extension on the share price, is it possible that revenue surprises also drive stock prices? If they do, then the merit of using P/S, and particularly lower P/S stocks as an investment, increases and becomes more important. On this front, research from Emory University and the Stern Business School analyzed income statements, balance sheets, and returns data between 1987 and 2003, to check if there’s any relation between revenue surprises and stock returns around earnings announcements.
It revealed that “earnings surprises that are accompanied by revenue surprises signal more persistent earnings growth than similar levels of earnings surprises not accompanied by matching revenues surprises.” In numerical terms, the research concluded that revenue surprises provide another valuable signal to investors since when stocks were screened for revenue and earnings surprises, the difference between abnormal returns in this category was 8.41% which was nearly two percentage points higher than the difference for stocks screened only for earnings surprises.
So, as it appears that revenue is an equally important part of stock valuation, we decided to look at Ray Dalio’s top revenue growth stocks.
To make our list of Ray Dalio’s top growth stocks with 30%+ revenue growth, we first filtered the 230 largest positions of Bridgewater Associates by investment value to pick out only those stocks with an absolute revenue growth greater than 80% for the past three years. Then, these stocks were further filtered with their 1-year revenue growth, and those with a growth higher than 30% were selected. These stocks are ranked by the value of the firm’s stake in them during Q1 2024.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. 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. Legend Biotech Corporation (NASDAQ:LEGN)
Number of Hedge Fund Investors in Q1 2024: 27
1 Yr Revenue Growth: 144%
Bridgewater Associates’ Q1 2024 Stake: $11.7 million
Legend Biotech Corporation (NASDAQ:LEGN) is a biotechnology company that is developing treatments for melanoma, myeloma, leukemia, and other form of cancers. Since it’s a biotechnology company, key to its stock performance are the progression with drug development, commercialization of developed products, and agreements with large pharma companies for milestone payments. On these fronts, Legend Biotech Corporation (NASDAQ:LEGN)’s leading product is its myeloma treatment called Carvytki. The firm has secured a deal with pharma giant JNJ for this drug, and the latter has already invested $1 billion into the platform. A CAR-T drug, as long as Legend Biotech Corporation (NASDAQ:LEGN) manages to manage FDA expectations for Carvykti and avoids any untoward event as well as scaling up production, it will be able to benefit from the growing market for its drug. Its price to sales ratio is 29.78, indicating high market hopes for the firm.
On its Carvykti sales and manufacturing, two central components for Legend Biotech Corporation (NASDAQ:LEGN)’s hypothesis, here’s what management had to say during its Q1 2024 earnings call:
“Turning to financial developments, CARVYKTI net trade sales for the first quarter were $157 million, which is 100% increase year-over-year.
Sequentially, net sales decreased by $2 million from $159 million in the fourth quarter of last year. This was a result of phasing due to the timing of orders and when they were delivered and billed for, as well as manufacturing testing needed for the upcoming expansion. Importantly, there was growth in patient demand, and, obviously, that was before the recent second line approvals. So we do anticipate continued growth for CARVYKTI, particularly in the second half of the year, as we continue to add more slots and expand our capacity. Right now, there’s no higher priority in the company than making more supply available to the market and reducing the vein-to-vein time. We’re working to expand production from every angle. We are continually increasing production at our Raritan, New Jersey, where we have doubled cell processing capacity since the beginning of 2023.
We are laser focused on completing physical expansion of our Raritan site this year. We plan to double CARVYKTI capacity by the end of 2024 compared to the end of 2023. Our production capacity will be augmented later in the year when our Obelisc facility in Ghent, Belgium is approved for commercial production. Clinical production already started back in January. With the second-line FDA approval, the specifications for manufacturing CARVYKTI were widened, which should give us greater yield going forward. Finally, Legend and J&J expanded a previous agreement with Novartis to perform commercial manufacturing for CARVYKTI through the end of 2029. The increases to our production capacity will help ensure we meet our target of annualized capacity of 10,000 patient slots by the end of 2025.”
9. Duolingo, Inc. (NASDAQ:DUOL)
Number of Hedge Fund Investors in Q1 2024: 43
1 Yr Revenue Growth: 44%
Bridgewater Associates’ Q1 2024 Stake: $12.7 million
Duolingo, Inc. (NASDAQ:DUOL) is a technology company that provides a fully online language learning platform and services. It is an early mover in its industry, which provides it with a large brand recognition that boomed during the pandemic which made Duolingo, Inc. (NASDAQ:DUOL) quite popular among university and job applicants seeking to prove their foreign language capabilities. Its popularity and market share mean that Duolingo, Inc. (NASDAQ:DUOL) has to focus on innovation and product delivery to stay at the top of its industry and ensure aspiring entrants do not steal its share. On this front, its platform now covers more than 40 languages, and Duolingo, Inc. (NASDAQ:DUOL) can also expand its competitive moat by targeting tangential sectors such as physics and mathematics learning. Additionally, Duolingo, Inc. (NASDAQ:DUOL) has 88.4 million users, which are just a fraction of the global population and internet users which provides it with ample room to grow. At the same time, any weakness in its daily average user (DAU) growth will affect the share price and force Duolingo, Inc. (NASDAQ:DUOL) to aggressively expand its platform.
Here’s what Duolingo, Inc. (NASDAQ:DUOL)’s management had to say about its usage metrics during the Q1 2024 earnings call:
“In Q1, we grew revenue and bookings by 45% and 41% respectively, delivered record profitability, and grew DAUs 54% year-over-year. These results show how powerful our product-driven flywheel is. Our excellent product fuels word-of-mouth growth, which in turn provides data to continuously improve the product, ultimately driving higher engagement and subscriber conversion. Our three-pronged approach of teaching better, growing users, and converting them to subscribers continues to be a winning strategy for us. This year, our monetization efforts are focused on optimizing our subscription offerings, including our Family Plan and our third-tier Duolingo Max.
We feel good about the progress we’ve made on Max based on the results of our experiments to date. Because of that, we rolled out Max more broadly in April, and today, roughly 5% to 10% of our DAUs have access to it. We will make it available to more countries and courses in the next few months. We’re also improving our Family Plan experience by streamlining the invite flow and having more engaging social features. Our progress on these initiatives, alongside other monetization initiatives and our current trends give us the confidence to raise our full-year guidance.”
8. e.l.f. Beauty, Inc. (NYSE:ELF)
Number of Hedge Fund Investors in Q1 2024: 33
1 Yr Revenue Growth: 73%
Bridgewater Associates’ Q1 2024 Stake: $17.1 million
e.l.f. Beauty, Inc. (NYSE:ELF) is a California based cosmetics and beauty products company. It is a new age cosmetics company, that is seeking to leverage the growth in US population by offering low cost beauty products to a wider market than traditional, high end companies can offer. e.l.f. Beauty, Inc. (NYSE:ELF) also uses the power of social media to its advantage, which lends it a foothold in a key marketing medium that big firms often struggle to come to terms with. Another key advantage that e.l.f. Beauty, Inc. (NYSE:ELF) enjoys its use of direct to consumer sales. This allows it to rapidly get the products out to its customers and provides it agility in a market that is dominated by fast moving trends and incumbents that often have to deal with retailers. However, recent data suggests that e.l.f. Beauty, Inc. (NYSE:ELF) is struggling to maintain its market share and bled customers during the first quarter of the year. Any further downward movement here could affect the share price.
ClearBridge Investments mentioned e.l.f. Beauty, Inc. (NYSE:ELF) in its Q1 2024 earnings letter. Here is what the firm said:
“ELF, in the consumer staples sector, is the third-largest mass cosmetics brand in the U.S. We believe the flywheel of ELF’s consumer value proposition, its innovation pipeline, and its unique ability to bring prestige-like products to mass consumers and high consumer engagement will enable the company to continue to outgrow the global market. We see significant opportunity for ELF to transform itself from an emerging U.S. color cosmetics brand to a global beauty stalwart by doubling its share in the U.S. over the next few years and gaining share in international and skincare markets. ELF is profitable, balancing growth and earnings, and has an attractive balance sheet.”
7. AppFolio, Inc. (NASDAQ:APPF)
Number of Hedge Fund Investors in Q1 2024: 36
1 Yr Revenue Growth: 31%
Bridgewater Associates’ Q1 2024 Stake: $17.5 million
AppFolio, Inc. (NASDAQ:APPF) is one of the more interesting cloud based software providers as it caters to the needs of renters and the broader real estate industry. Its business model makes AppFolio, Inc. (NASDAQ:APPF)’s 31% revenue growth in 2023 surprising since the real estate industry has struggled due to high rates and financing costs as well as high rents. This has partly been attributed to AppFolio, Inc. (NASDAQ:APPF)’s decision to introduce additional services such as payments processing on its platform that target an existing market of renters in America. The firm’s second quarter saw it grow Value Added Services revenue by 44% annually, which also led to the division accounting for 77% of AppFolio, Inc. (NASDAQ:APPF)’s revenue. Looking at ACH’s growth, the segment should prove to be crucial for future share price performance, especially as ACH crossed its one year anniversary in June 2024. At the same time, being a software firm allows AppFolio, Inc. (NASDAQ:APPF) to control its margins, and the firm can maintain growth by earning more revenue from existing users and expanding its market.
Brown Capital Management mentioned AppFolio, Inc. (NASDAQ:APPF) in its Q1 2024 earnings call. Here is what the firm said:
“AppFolio (APPF) and Vericel (VCEL) were among the top contributors to performance during the first quarter.
AppFolio provides cloud-based content management software to U.S. property management clients. AppFolio streamlines and enhances the mostly manual rental process, saving clients time, money and headaches. AppFolio provides small and mid- sized managers with a wide range of user-friendly solutions, seamlessly in a single platform. AppFolio is growing by adding new solutions to the platform and attracting larger clients. In contrast, the largest competitors address larger clients and have older, legacy products or have acquired a patchwork of solutions that are difficult to integrate. AppFolio clients manage 8.2 million rental units in the U.S., which is about a 10% penetration. Given AppFolio’s low market share, we see a long runway for growth.
AppFolio reported stronger-than-expected fourth quarter and fiscal year (FY) 2023 results in January. Fourth quarter revenue grew 39% year over year while FY 2023 revenue grew 31%. The strong revenue growth was driven by 13% rental unit growth, 7% customer growth, growth in average revenue per user and an increase in payments utilization. The company returned to GAAP profitability after two years of higher-than-normal investments. These strong results contributed to the recent price outperformance.”
6. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Investors in Q1 2024: 73
1 Yr Revenue Growth: 40%
Bridgewater Associates’ Q1 2024 Stake: $17.9 million
Snowflake Inc. (NYSE:SNOW) is a cloud computing company that enables businesses to consolidate their data under a single roof to generate insights and run analysis. The data warehousing industry is one of the hottest in America right now, especially due to the proliferation of enterprise computing and particularly due to AI’s reliance on large amounts of data for model training. On this front, Snowflake Inc. (NYSE:SNOW) is one of the top companies in its industry, with estimates showing that it commands a 22% share of the data warehousing market. As software as a service (SaaS) stock, the keys to Snowflake Inc. (NYSE:SNOW)’s hypothesis are its revenue growth, its recurring revenue, and its margins. It has to perform on all three fronts to maintain the current valuation, which has seen analysts value Snowflake Inc. (NYSE:SNOW) at a whopping 238 times its forward earnings. This valuation also makes the stock quite vulnerable to any revenue slowdown, which is typically the case for SaaS stocks in an economy constrained by high interest rates and inflation.
To counter a potential slowdown, Snowflake Inc. (NYSE:SNOW) has to ensure it brings more customers to its platform no matter how the economy is doing. Here’s what management had to say on this front during the Q1 2025 earnings call:
“I’ve had conversations with over 100 customers for the past several months, and I’m very optimistic. Snowflake is a beloved platform, and the value we bring comes through in every customer conversation I have.
We are critical in helping our customers run their businesses. For example, one of the largest US telcos relies on us to help them close their books every month. We also help a global financial service customer from their counterparty credit risk process. The art of the possible on Snowflake is really incredible. It’s also probably no surprise that AI is top of mind for our customers as well. They want to make all business data in Snowflake available to everyone, not just the business analyst. They want us to help drive clarity, value creation, and reliability as they enter this new frontier. Over the last quarter, my time spent with our go-to-market teams has been focused on driving execution and alignment. Internally, we emphasize consumption and new customer acquisition.
And we’re developing an end-to-end cadence for both priorities. This includes developing sales motions in specific workloads, such as AI and data engineering. We have more to gain as we standardize our consumption mindset and effectively execute. We expect that this efficiency will contribute to further revenue growth. Those of you who know me know that I have a relentless focus on product innovation and delivery. Teams across the company are building and delivering at an incredible pace. Earlier this month, we announced that Cortex, our AI layer, is generally available. Iceberg, Snowpark Container Services, and Hybrid Tables will all be generally available later this year. We’re investing in AI and machine learning, and our pace of progress in a short amount of time has been fantastic.
What is resonating most with our customers is that we are bringing differentiation to the market. Snowflake delivers enterprise AI that is easy, efficient, and trusted. We’ve seen an impressive ramp in Cortex AI customer adoption since going generally available. As of last week, over 750 customers are using these capabilities. Cortex can increase productivity by reducing time consuming tasks. For example, Sigma Computing uses Cortex language models to summarize and categorize customer communications from their CRM. In the quarter, we also announced Arctic, our own language model. Arctic outperformed leading open models such as LLaMA-2-70B and Mixtral 8x7B in various benchmarks. We developed Arctic in less than three months at one-eighth the training cost of peer models.”
5. Las Vegas Sands Corp. (NYSE:LVS)
Number of Hedge Fund Investors in Q1 2024: 52
1 Yr Revenue Growth: 151%
Bridgewater Associates’ Q1 2024 Stake: $19.4 million
Las Vegas Sands Corp. (NYSE:LVS) is a casino company that is riding the growth wave on the back of the Chinese recovery from the coronavirus pandemic. This is because all of its most profitable properties are located in Macao along with Singapore. China’s extreme Zero COVID restrictions sapped the life out of the tourism industry, and naturally, Las Vegas Sands Corp. (NYSE:LVS)’s revenue fell as a result. In 2020, it earned $2.9 billion in revenue, and this jumped to $10.3 billion in 2023. The one year 151% revenue growth by 2023 end was also on the back of strong operating income performance. Las Vegas Sands Corp. (NYSE:LVS)’s operating income grew sequentially in all of its quarters in 2023, and it ended the fourth quarter with $654 million in EBITDA. Potential tailwinds to the stock can come in the form of further stimulus by the Chinese government to encourage tourism, such as encouraging visa free entry for some travelers. However, Las Vegas Sands Corp. (NYSE:LVS)’s key indicator of gross gaming revenue (GGR) can struggle if the impact of fresh capital control restrictions in China depresses casino spending.
Another key aspect of Las Vegas Sands Corp. (NYSE:LVS)’s performance is the impact of capital heavy spending on Macao property refurbishment. Here’s what the firm had to say on this front during the Q1 2024 earnings call:
“The ongoing capital investment programs at The Londoner and at the Cotai Arena had an impact on our results this quarter. The Cotai Arena was closed for renovation in January this year. After the significant reinvestment and renovation, the arena is expected to reopen in November. In terms of the second phase of the Londoner, we have now commenced the room renovation on the first Sheraton.
We plan the completion of the first tower by year-end and of the second tower by Golden Week in May of 2025. The renovation of the casino on the Sheraton side of London will commence in May of this year with the reopening scheduled for December of 2024. While there will be ongoing disruption from these capital projects, as these products come online between the end of ’24 and the first half of ’25, our competitive position will be stronger than ever. The scale, quality and diversity of product will be better than we have ever offered before. They will be unmatched in the market.”
4. Trip.com Group Limited (NASDAQ:TCOM)
Number of Hedge Fund Investors in Q1 2024: 49
1 Yr Revenue Growth: 123%
Bridgewater Associates’ Q1 2024 Stake: $32.7 million
Trip.com Group Limited (NASDAQ:TCOM) is another stock that’s riding the wave of the coronavirus recovery. This is because it belongs to the global travel industry, which has continued to recover over the course of the past three years. By Q1 2024 end, Trip.com Group Limited (NASDAQ:TCOM) earned CNY11.9 billion in revenue for a 24% annual growth. Another China focused company, Trip.com Group Limited (NASDAQ:TCOM) can benefit from similar government incentives such as visa free travel like LVS. However, its scale allows it to target the broader Asian region, which means that if China opens its borders, then Trip.com Group Limited (NASDAQ:TCOM) can capture a lot of the travel volume growth due to its market positioning. It is also creating new products for its existing customers, by initiatives such as a deal with Proticket to increase travel suppliers on its platform; and greater penetration into second and third tier Chinese cities due to improved travel infrastructure such as roads and hotels.
Trip.com Group Limited (NASDAQ:TCOM)’s scale also provides it with the benefits of economies of scale to control margins. Here’s what management had to say on this front during the Q1 2024 earnings call:
“Yes, we have achieved a healthy margin level for our domestic business, thanks to the large scale and scalability that we achieved. And the outbound business normally have a slightly higher margin, thanks to the average higher selling price. And at the same time, related to the cost, including the service cost, the product development cost, as well as sales and marketing costs are quite similar to the — compared with the domestic business. So therefore, outbound travel normally is the higher-margin business for us. With regard to the Trip.com business, as I said before, we closely — although the Trip.com business has [indiscernible] in the investment period, however, we closely monitor the contribution margin of the Trip.com business.
And recently, our Trip.com business as a whole has achieved at least a breakeven level in terms of the contribution margin. And in the longer-term period, we strongly believe that the Trip.com business will also become a profitable, healthy growth business in the future. So in summary, we expect our margins to align with — will be aligned with the typical seasonal patterns, reflecting the strong business growth and disciplined cost management. And looking ahead, our margin expansion will primarily stem from operational scalability and approve the sales and marketing efficiencies. However, this may be partly offset by additional expenses associated with expanding our international operations.”
3. DoorDash, Inc. (NASDAQ:DASH)
Number of Hedge Fund Investors in Q1 2024: 76
1 Yr Revenue Growth: 33%
Bridgewater Associates’ Q1 2024 Stake: $81.8 million
DoorDash, Inc. (NASDAQ:DASH) is an American food delivery company that allows customers to order food from their homes or other remote locations. It enjoys a considerable market advantage in its primary industry, with data from Bloomberg Second Measure showing that DoorDash, Inc. (NASDAQ:DASH)’s market share of the food delivery market sitting at 67%. This means that as opposed to growing market share, the firm has to aggressively defend itself against well funded rivals such as Uber which holds a 23% market share. Additionally, the dominant market positioning also allows DoorDash, Inc. (NASDAQ:DASH) to grow revenue in tangential businesses such as grocery delivery. Both of its markets – food and grocery delivery – target working individuals who often do not have the time to either make their food or buy groceries. This means that DoorDash, Inc. (NASDAQ:DASH) is nearly assured a stable future market, but at the same time, the growth initiatives come at a cost. The firm is unprofitable, and analysts expect it to turn a profit in the current quarter. The ‘costs’ were clear as it revealed Q1 2024 earnings, with DoorDash, Inc. (NASDAQ:DASH)’s shares tumbling by 10% as Q2 operating income midpoint guidance of $375 million missing analyst estimates of $394 million.
Another key determinant of DoorDash, Inc. (NASDAQ:DASH)’s share performance is the macro environment. Here’s what management believes is in store for macro:
“I mean, in general, we’re not seeing, I think, the signs of strain on the consumer, but I think it perhaps has something to do with the segment that we operate in, which is digital and delivery. I do understand that there are some headwinds that certain merchants face when it comes to in-store traffic. But when it comes to all things digital, we’re actually not seeing, I think, those same signs of strains. Even, for example, in the US restaurants business, I mean, the growth is pretty consistent over the last six quarters. So it’s — that’s — whatever, 18 months or something that roughly has been true for. And so we tend to see that to be true there. We even see it true in other categories. Even categories like grocery, where you’re still seeing very sticky or very high inflation in terms of input prices which have led to high prices on grocery items.
But I think on the digital side, we tend to see pretty strong demand, and that’s why you see relatively stable growth.”
2. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Investors in Q1 2024: 76
1 Yr Revenue Growth: 90%
Bridgewater Associates’ Q1 2024 Stake: $179 million
PDD Holdings Inc. (NASDAQ:PDD) is a Chinese eCommerce company that has managed to establish itself as a formidable player in an industry dominated by the eCommerce giant Alibaba. This is because of its bulk buying model, which enables buyers to team up, increasing their buying power, and getting lower prices for their products. This model has also made PDD Holdings Inc. (NASDAQ:PDD) one of the fastest growing companies in China, and that too in the cyclical eCommerce industry which typically suffers in a slow economy. Additionally, PDD Holdings Inc. (NASDAQ:PDD) is also using its Chinese success to position itself for the global market through its Temu platform. Through Temu, it hopes to use its established partners with Chinese merchants to deliver low cost products to the Western market. However, Temu has suffered from consumer complaints, and the EU consumer protection group has lodged a complaint against it which alleges that Temu has failed to protect customers. Additionally, PDD Holdings Inc. (NASDAQ:PDD) could also face headwinds through Western sanctions against China and data collection concerns.
On quality complaints, here’s what PDD Holdings Inc. (NASDAQ:PDD)’s management had to say during the Q1 2024 earnings call:
“As commerce integrates with digital technology at a record pace, consumers and regulators are holding e-commerce platforms accountable for higher standards and we are taking the initiative to build an industry-leading compliance program and to leverage our technology capabilities to empower SME businesses with our compliance know-how. This is to foster a healthy environment that attracts quality merchants that are willing to play by the rules and drive out bad actors thereby creating a positive feedback loop. When it comes to consumer well-being and economic interest, we always stand behind the former. We are focused on building long-lasting trust with our consumers and not on short-term gains. We also adopt a similar long-term orientation in other aspects of our business.”
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors in Q1 2024: 186
1 Yr Revenue Growth: 126%
Bridgewater Associates’ Q1 2024 Stake: $636 million
NVIDIA Corporation (NASDAQ:NVDA) is the GPU designer that’s at the heart of the AI race. Its biggest competitive moat are its GPUs, which are NVIDIA Corporation (NASDAQ:NVDA)’s bread and butter and its primary products. These have allowed NVIDIA Corporation (NASDAQ:NVDA) to have a three year revenue growth of 267% and propelled it to a $3 trillion+ market capitalization. Its GPUs also enjoy a tight link with NVIDIA’s CUDA platform that enables users to tightly control their use. However, while they provide NVIDIA Corporation (NASDAQ:NVDA) with a considerable competitive moat, the biggest concern for the firm is its large customers developing in house products. On this front, the latest updates come from OpenAI’s Sam Altman and Elon Musk, both of whom are either interested in developing their own AI chips or using already developed custom chips to compete with NVIDIA. Therefore, NVIDIA Corporation (NASDAQ:NVDA) has to keep up its competitive edge, and as of now, its next generation Rubin AI platform is slated to launch in 2026.
Polen Capital mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter. Here is what the firm said:
“For the second quarter in a row, NVIDIA represented the top detractor to relative performance as the stock climbed another 37%, bringing the year-to-date return to +150%. As of this writing, NVIDIA is the third largest company in the world, but for a brief moment, it surpassed Microsoft to become the largest company in the world. Yet again, the company delivered blowout results that surpassed already lofty expectations, reinforcing the narrative that NVIDIA is the only obvious “AI winner” due to the amount of revenue it is currently generating.
However, our research indicates that most businesses are only experimenting with GenAI rather than actual, proven use cases. This means it is possible that the huge infrastructure build out and ravenous demand for GPUs and AI servers may be ahead of the true demand for that infrastructure. It’s one more indication of the wider range of possible outcomes we see for future 3-5-year revenue growth than we are comfortable with at the company’s current valuation. In prior commentaries, we have spoken at length about the cyclicality of NVIDIA’s business and the potential for significant changes in its revenue and earnings growth from year to year.
We believe NVIDIA is a highly advantaged business, but we observe that much of the demand for their chips and servers is ahead of the need for hardware from real-world businesses. Therefore, we are cautious, especially when considering the company for a concentrated portfolio of durable growth businesses. Market expectations are elevated as the company has already achieved a $3+ trillion market capitalization. Meanwhile, our research shows that few companies are deploying GenAI beyond pilot projects, and even fewer have earned satisfactory returns on their GPU-related investments to date (graphics processing units).”
While NVDA tops Ray Dalio’s revenue growth stocks, 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer’s Latest Portfolio: Top Calls for August.
Disclosure: None.
