These incredible companies have the power to easily surpass artificial intelligence (AI) leader Nvidia in the coming years.
One of the best things about putting your money to work on Wall Street is that most online brokers have eliminated the barriers that previously kept retail investors on the sidelines: Minimum deposit requirements and fees for trading common stocks on major U.S. exchanges are largely a thing of the past.
For the everyday investor, this means that virtually any amount of money, even $300, can be the perfect amount to invest in the stock market.
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Investing $300 in Wall Street’s hottest stock might sound appealing, but artificial intelligence (AI) champion Nvidia is (NVDA 2.18%)Right now, there are three unstoppable stocks that could make for smarter buys.
4 reasons why investors aren’t comfortable investing in NVIDIA
Despite Nvidia’s AI graphics processing units (GPUs) dominating the market in high-computing data centers, the company’s stock has peaked and there are several reasons to believe it will underperform in the coming years.
For example, no next big innovation has avoided an initial bubble burst in at least 30 years. Investors routinely overestimate the adoption and usefulness of new technologies and innovations, only for real-world outcomes to ultimately fall short of supernatural expectations. If artificial intelligence follows this path, no company will be hit harder than Nvidia.
Another expected headwind for Nvidia is increasing competition. While it’s well-known that other chipmakers are ramping up production or debuting AI-GPUs for AI-accelerated data centers, investors may be overlooking the possibility of internal competition. Nvidia’s top four customers by net sales are all developing their own AI-GPUs, which will no doubt limit future orders for the company’s hardware.
Insiders haven’t given investors a reason to buy, either: Nvidia’s recently announced $50 billion share repurchase program, or what I call the “smokescreen,” doesn’t hide the fact that it’s been 45 months since insiders bought a single share on the open market.
Finally, Nvidia’s valuation is not as attractive as it seems: The company’s stock is valued at an abysmal 30 times trailing-twelve-month (TTM) sales, and briefly exceeded a TTM price-to-sales multiple of 40 times in June.
Forget Nvidia and consider investing $300 in these three unstoppable stocks right now.
visa
The first sensational stock that you can buy for $300 right now and has all the tools necessary to deliver superior returns for Nvidia over the next few years is major payments processor Visa. (V -1.16%).
Despite growing signs of a recession, Visa benefits greatly from the nonlinear nature of economic cycles. Recessions are normal and inevitable, but historically they have also been short-lived: Of the 12 U.S. recessions since the end of World War II, only three have lasted a year.
In comparison, growth periods usually last for years, even decades. Visa has been benefiting from a long period of growth and a long period of expansion in consumer and business spending.
At the same time, Visa is well protected from economic downturns because it purposefully avoids lending. While some of its peers are in the business of lending and processing payments, Visa is solely focused on facilitating payments. Because it doesn’t lend, it doesn’t need to set aside capital for the inevitable period when the U.S. economy weakens. This gives Visa more financial flexibility than its peers, allowing it to recover from a downturn much faster.
Visa also sees big opportunities in international markets. In Visa’s most recent quarter, cross-border payment volume grew 14% on a constant currency basis, in keeping with a consistent theme of sustained double-digit growth in cross-border payment volumes. Many of the world’s fastest-growing emerging markets are chronically underbanked, giving Visa a unique opportunity to sustain double-digit annual revenue growth for the rest of the decade and beyond.
Image credit: Walt Disney.
Walt Disney
The second unstoppable stock to buy now at $300 that could outperform Nvidia in terms of returns is media giant Walt Disney. (DIS 0.24%).
Few companies have been hit as directly by the COVID-19 pandemic as Disney. The combination of theme park closures, studio production limits, and some movie theater closures has severely hurt Disney’s revenue. But as China’s economy reopens and studio production ramps up, Disney is regaining its luster.
Perhaps the best thing about the Disney business model is that it is inimitable. There is no shortage of movies and shows to watch or theme parks to visit, but no other company has the history, depth of engagement, characters, or storytelling ability that Disney does. This alone ensures that Walt Disney will continue to generate predictable cash flows from its multiple business segments.
Another thing investors can look forward to is the progress of Disney’s direct-to-consumer division. After years of heavy losses, Disney achieved its first operating profit from its DTC division. Being an irreplaceable media company allowed the company to raise subscription prices for all tiers and get its DTC division profitable a quarter ahead of schedule.
The House of Mouse is historically undervalued. Its forward price-to-earnings ratio of 18 is 31% lower than its average forward earnings multiple over the past five years. Moreover, Disney should be able to deliver sustained double-digit earnings growth as its DTC division and studios begin to take off.
Pubmatic
The third unstoppable stock that’s currently a smarter buy than Nvidia at $300 is small-cap ad tech company PubMatic. (PUBM -1.11%).
PubMatic is well positioned to capitalize on the rise of digital advertising. While advertising is highly cyclical and companies are not shy about cutting marketing budgets at the first sign of trouble, the non-linearity of economic cycles mentioned above favors advertising-driven businesses. Investors with a long-term mindset should benefit from holding shares in companies that see advertising spending grow over time.
One of the key reasons PubMatic is on the brink of success is the decision made by the company’s management to design and develop its own cloud-based programmatic advertising platform. While it could have been easy for PubMatic to turn to a third-party provider, the decision to build its own cloud-based infrastructure should critically increase operating margins as revenue grows.
As mentioned above, PubMatic is focused on the fastest growing segment of the advertising space: specifically, its sell-side platform aimed at selling digital display space to mobile, video, and connected TV (CTV) advertisers. All three of these segments are poised to sustain double-digit annual ad spend growth for the foreseeable future, with CTV ad spend expected to grow the fastest.
Finally, PubMatic is cash-rich and has plenty of financial flexibility: The company had $165.6 million in cash and cash equivalents as of the end of June, had no debt, and has repurchased approximately $100 million worth of common stock. Additionally, the company is on track to achieve its 10th consecutive year of positive operating cash flow.
