Artificial intelligence and pent-up travel demand have been powerful catalysts for the post-pandemic stock market. Check out the top three performing stocks in the S&P 500 (SNPINDEX: ^GSPC) during the last two years, as listed below:
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Nvidia (NASDAQ: NVDA) shares rose 775%.
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Supermicrocomputer (NASDAQ: SMCI) shares rose 591%.
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Royal Caribbean Cruises (NYSE: RCL) shares rose 302%.
Importantly, Wall Street is expecting more earnings from all three growth stocks. Nvidia’s median target of $150 per share implies 26% upside from the current share price of $119. Super Micro’s median target of $675 per share implies 54% upside from the current share price of $437. And Royal Caribbean’s median target of $184 per share implies 12% upside from the current share price of $164.
Investors should never rely too much on price targets, but these three monster growth stocks deserve closer consideration. Here are the key details.
Nvidia: 2-Year Return of 775%
Nvidia graphics processing units (GPUs) are the industry standard in data center accelerators, meaning they speed up tasks like training machine learning models and running artificial intelligence (AI) applications. GPUs perform engineering calculations faster and more efficiently than central processing units (CPUs), and Nvidia regularly sets records on the MLPerfs, objective tests that measure AI training and inference capabilities.
Analysts say the company has a 95% market share of AI chips. But Nvidia’s true formidability comes from decades of developing its CUDA platform, a software ecosystem that streamlines data preparation and application development across a wide range of disciplines. The company has also expanded its ability to monetize AI by branching out into cloud services and adjacent hardware markets, including data center networking and server CPUs.
Over the past two years, Nvidia has grown revenue by 240% and GAAP earnings by 599%, and the company is well-positioned to maintain that momentum. Grand View Research expects the graphics processor market to grow 27% annually through 2030 on strong demand for AI accelerators.
Nvidia shares fell after its second-quarter report despite strong results, but most analysts remain optimistic. CFRA’s Angelo Zino believes Nvidia “will be the most important company for our civilization in the next decade as the world becomes more AI-driven.” More broadly, Wall Street expects the chipmaker’s earnings to grow 36% annually over the next three years. That estimate makes its current valuation of 56 times earnings seem reasonable.
Super Micro Computer: 2-Year Return of 591%
Super Micro Computer develops high-performance computing platforms for enterprise and cloud data centers. The portfolio ranges from individual servers and storage systems to entire server racks optimized for workloads such as artificial intelligence. In fact, Super Micro is the leading supplier of AI servers, and its market share is expected to reach 17% in 2026, up from 10% in 2023, according to Bank of America analysts.
What sets Super Micro apart is its in-house engineering capabilities and modular approach to development, both of which support rapid product rollouts. CEO Charles Liang says the plug-and-play nature of its servers allows the company to quickly build a wide range of products using the latest chips from vendors like Nvidia. In turn, Super Micro is typically two to six months faster than competitors in the market.
Over the past two years, Super Micro has grown revenues by 188% and GAAP earnings by 277%. The company is well positioned to maintain that momentum, as analysts at JPMorgan expects sales of AI servers to increase sixfold between 2023 and 2028. Additionally, Super Micro is a leader in direct liquid cooling (DLC) solutions, which reduce data center costs by regulating server temperatures more efficiently than traditional air cooling. Demand for DLC should parallel demand for AI servers, as they generate significant heat.
Shares of Super Micro have fallen sharply recently after short-seller Hindenburg Research uncovered “accounting red flags, evidence of undisclosed related-party transactions, sanctions and export control failures, and customer problems.” But most analysts remain optimistic. Wall Street expects Super Micro to grow its earnings 49% per year over the next three years. That consensus estimate makes the company’s current valuation of 22 times earnings look pretty cheap.
Royal Caribbean: 2-Year Return of 302%
Royal Caribbean is the world’s second-largest cruise company. Its fleet of 68 ships includes five brands that sail to approximately 1,000 different destinations. That size provides the company with a sustainable economic moat in the capital-intensive cruise industry. In addition, Jaime Katz is at Morning Star recently wrote: “Royal Caribbean has established an attractive position in the cruise sector thanks to its contemporary brand and attractive destinations.”
In November 2022, Royal Caribbean outlined the Trifecta program, a three-year financial initiative intended to return the company to pre-pandemic strength: (1) adjusted EBITDA per available passenger cruise day of at least $100, (2) adjusted earnings per share of at least $10 and (3) return on invested capital of at least 13%. These targets were chosen because they surpassed pre-pandemic records.
Royal Caribbean met all three criteria in the most recent quarter, putting it 18 months ahead of schedule. That means the company is (1) monetizing customers more efficiently, (2) operating more profitably, and (3) allocating capital more effectively. Royal Caribbean also reinstated its dividend, another sign of improving financial strength. The quarterly payout currently stands at $0.40 per share, which yields about 1%.
Wall Street expects Royal Caribbean’s adjusted earnings per share to grow 19% annually through 2026. That estimate makes the current valuation of 16.3 times adjusted earnings reasonable, but not cheap. I say that because shares were trading around 14 times adjusted earnings in the years leading up to the pandemic. The current price is a good entry point, but I wouldn’t blame investors waiting for a slightly cheaper valuation.
Should You Invest $1,000 in Nvidia Now?
Before you buy Nvidia stock, here are some things to consider:
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
3 Supercharged Growth Stocks That Are Up 302% to 775% in 2 Years and You Should Buy Now, According to Wall Street was originally published by The Motley Fool
