Nvidia has become one of the most valuable stocks in the world, with a market capitalization of over $3 trillion. Over the past twelve months, it has risen by over 200% as investors remain optimistic about the company’s long-term prospects.
But investing in stocks with a smaller market capitalization can sometimes yield better returns for investors. Three stocks with much lower valuations than Nvidia and which have outperformed the chipmaker over the past twelve months: Vertiv Holdings (NYSE: VRT), Coinbase worldwide (NASDAQ: MINT)And Carvana (NYSE:CVNA).
Here’s a closer look at why these stocks are rising and whether they could remain good buys in the future.
1. Vertiv Holdings
Vertiv has a valuation of $34 billion and doesn’t come close to Nvidia’s market cap, even with a superior 297% gain over the past twelve months. The tech company is involved in data centers and provides critical IT infrastructure, which is a key reason why it is performing so well and why investors are bullish on Vertiv. It has benefited from interest in artificial intelligence and its liquid cooling services, which keep computing operations running smoothly even under high loads.
In the company’s most recent earnings report (ended March 31), Vertiv reported organic order growth of 60%. Actual net sales of $1.6 billion grew 8% year over year, and operating profit of $203 million increased 55% from the same period last year. By 2024, the company expects sales to reach at least $7.5 billion, which would result in organic growth of more than 11%.
At a price-to-earnings-growth ratio (PEG) of less than 1, the stock looks cheap, and investors are optimistic that there is much more growth ahead for Vertiv. Given the need for more data center care and maintenance in the future, this could be a good stock for growth-oriented investors to add to their portfolios in the long term.
2. Coinbase Worldwide
Coinbase has a higher valuation of $60 billion, and its shares are up 340% in the past year. The driving force is the excitement all around Bitcoin and digital currencies in general. A big catalyst earlier this year was the approval of spot bitcoin exchange-traded funds (ETFs), which made investors optimistic about the prospects for even greater interest in crypto.
The more activity there is for crypto, the better the growth prospects are for Coinbase, which runs a top cryptocurrency exchange platform. Through the first three months of the year, the company’s revenue was $1.6 billion – more than double the $773 million it reported in the same period a year ago. Coinbase also posted a strong profit of nearly $1.2 billion (compared to a loss of $79 million last year) as it posted strong crypto-related gains.
Coinbase is likely to remain volatile as it will depend not only on interest in crypto, but also on the valuation of Bitcoin and other assets it is exposed to. This makes this a type of investment that may be more suitable for crypto enthusiasts and investors with a high risk tolerance. It’s not an investment that I expect to consistently outperform Nvidia.
3. Carvana
Carvana shares have given back some gains of late, but even with a dip its twelve-month return remains an impressive 330%. The company makes it easy for people to buy used cars online. But concerns about the economy and rising interest rates caused investors to sour on the stock in 2022, when the share price plummeted 98%.
While interest rates remain high, the stock’s significantly lower valuation has likely played a role in investors’ willingness to take a chance on the company. The company also gave investors some hope by posting a surprise profit in the first quarter of 2024, with net income totaling $49 million for the period ending March 31. Many investors feared much worse outcomes given the current economic conditions.
Carvana’s market cap is $12 billion, making it the least valuable stock on this list. While it is much more valuable than it was a year ago, the uncertainty for the company makes it a risky and highly speculative stock to own now. It is likely that interest rates will fall in the future, but the question is still when that will happen. Meanwhile, the stock trades at more than 40 times its earnings and book value.
This is an example of another investment that is unlikely to be suitable for risk-averse investors. While Carvana stock has outperformed Nvidia over the past year, this isn’t a trend I think will be sustainable in the long term.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Nvidia. The Motley Fool has a disclosure policy.
These three growth stocks have outperformed Nvidia in the past year, originally published by The Motley Fool
