We recently compiled a list of 10 stocks that will stand out from the rest over the next 10 years, and in this article, we’ll take a look at how NVIDIA Corporation (NASDAQ:NVDA) positions itself against the rest of the stocks that will stand out from the rest over the next 10 years.
Growing a business is not easy. When talking about growth, several factors come into play. In 2019, McKinsey reported that roughly 50% of companies that enjoyed healthy and stable shareholder returns but did not experience revenue growth were acquired or delisted. Growth is becoming increasingly challenging amid new market trends such as rising consumer expectations, increased competition, and digital disruption. Growth will only be rewarded to companies that spot opportunities at a very granular level and seize them quickly.
Pricing power remains important, says legendary investor
Warren Buffett, the billionaire CEO of Berkshire Hathaway, has said he tends to value companies based on their ability to raise prices. He pays so much attention to pricing power that he sometimes doesn’t even consider the people who are running the companies. Buffett has a successful history of stock picking and acquisitions.
The veteran investor has bought railroads and power companies that have the pricing power because there are few competitive options available to customers. He has also bought stakes in several consumer goods companies that rely on the appeal of their brands to draw customers.
Predictions for 2024
Wall Street analysts expect S&P 500 companies to report steady earnings growth in 2024. They project earnings growth of about 5.4% in the third quarter of 2024 and about 15% or more in the fourth quarter of 2024. The forward price-to-earnings ratio for the S&P 500 is about 22.40 as of Aug. 30. Over the past 10 years, the average forward price-to-earnings ratio has been about 17.9, suggesting that stock valuations may be a bit overvalued.
Looking ahead, the US presidential elections remain the most important potential market catalyst in the second half of 2024. Landsberg Bennett Private Wealth Management believes inflation numbers may be stronger than expected in late 2024 and into 2025 as year-on-year comparisons may become more difficult and the impact of rising Chinese ocean freight rates begins to be reflected in inflation data points.
Stock market outlook in an uncertain macroeconomic environment
The “longer higher” backdrop favored larger, higher quality companies that are less exposed to economic cycles and interest rates. These companies were bolstered by the craze for Artificial Intelligence/Large Language Model (AI/LLM) stocks. JP Morgan believes that momentum concentration and equity market concentration in the U.S. equity market has reached multi-decade highs.
US market volatility remains low with the VIX averaging just around 14 for the one-year period ending July 2024. This is primarily due to fundamental and technical factors including rising markets, risk apathy and low realized correlations.
In Europe and elsewhere, improving economic activity and expectations of multiple interest rate cuts by the Fed in early 2024 supported equities broadly. However, the trade-off between growth and policy could worsen in the second half of 2024. JP Morgan believes there is a “risk of disappointment.” The banking giant expects the Fed to keep interest rates “higher for longer,” which could lead to weaker momentum in U.S. economic activity and weaker pricing and sales growth. Overall, this could have a negative impact on earnings performance in the second half of 2024. Therefore, investing in companies with broad economic advantages and large market shares should help offset losses in the second half of 2024.
Our Methodology
To compile a list of the 10 best-in-class stocks for the next decade, we sifted through wide-moat ETFs and checked online rankings. We then narrowed the list by removing companies that have maintained near-monopoly positions for years or decades. Finally, we ranked the stocks by the number of hedge funds holding them as of Q2 2024.
At Insider Monkey, we stick to stocks that hedge funds concentrate their investments in. The reason is simple: our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
Close-up of a colorful high-end graphics card plugged into a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
Number of hedge fund holders: 179
NVIDIA Corporation (NASDAQ:NVDA) is a designer of discrete graphics processing units that enhance experiences on computing platforms. The company’s chips are used in a variety of end markets, including high-end gaming PCs, data centers, and automotive infotainment systems. The company holds over 90% of the GPU market share.
NVIDIA Corporation (NASDAQ:NVDA) remains a strong competitor thanks to more than a decade of investment in software and hardware that has enabled it to outperform ordinary silicon. This superior performance is the result of software optimizations and constantly updated acceleration libraries.
Undoubtedly, NVIDIA Corporation (NASDAQ:NVDA) has a strong economic moat thanks to intangible assets around graphics processing units and switching costs associated with its proprietary software, such as its CUDA platform for AI tools, which allows developers to build AI models using the company’s GPUs. Similar to iOS, which keeps people tied to their iPhones as developers create applications for them, market experts believe the same is happening with NVIDIA Corporation (NASDAQ:NVDA). AI engineers are learning the CUDA platform to program their GPUs.
The company announced its second quarter 2024 results, reporting record quarterly revenue of $30 billion, up 15% from the first quarter of 2023 and up 122% year-over-year. The company’s record revenue is fueled by data centers around the world continuing to modernize their entire computing stack with accelerated computing and generative AI.
Rosenblatt Securities reaffirmed a “buy” rating on shares of NVIDIA Corporation (NASDAQ:NVDA) on August 29th and set a $200.00 target price.
Aoris Investment Management, a specialist international equity management firm, released its investor letter for the second quarter of 2024 and mentioned NVIDIA Corporation (NASDAQ:NVDA). The fund commented as follows:
“If information technology was the leading sector this quarter, then NVIDIA Corporation (NASDAQ: NVDA), the largest supplier of microprocessors used in generative AI applications, was the leading company. NVIDIA’s shares rose by a third this quarter and are up 255% so far this year. Since the beginning of 2023, the company’s market capitalization has increased 8.3 times, or $4.3 trillion, making NVIDIA the third-largest company in the world by this metric.
As a result of the extraordinary performance of NVIDIA and other large companies, the stock market has become increasingly concentrated. As the chart below shows, as of June 30, just five companies held 27% of the market capitalization of the top 500 companies in the US, more than double the average over the past 20 years.
The composition of the Aoris International Fund will always vary significantly from the overall stock market. There will be periods, as in the most recent quarter, where this will cause it to underperform its benchmark. When it comes to NVIDIA and other AI-centric companies, the rapid growth is exciting, but it is difficult to judge what is normal. We prefer to own large, established companies where we can make more confident, evidence-based judgements about growth and profitability.
Overall, NVDA ranks #2 on our list of unbeatable stocks for the next decade. While we acknowledge NVDA’s potential as an investment, we believe some highly undervalued AI stocks have a greater chance of delivering higher returns in a shorter time frame. If you’re looking for highly undervalued AI stocks that are more promising than NVDA but still trade for less than 5x its earnings, check out our report on the best cheap AI stocks.
Read next: $30 Trillion Opportunity: Morgan Stanley’s 15 Best Humanoid Robot Stocks to Buy Jim Cramer Says NVIDIA Has “Become a Wasteland”
Disclosures: None. This article was originally published on Insider Monkey.
