Two of the hottest stocks yet in 2024 are Chipotle Mexican Grill (NYSE: CMG) And Nvidia (NASDAQ: NVDA). Indeed, both companies are considered leaders in their respective industries.
However, in addition to solid business performance, these two companies have something else in common that is driving increased purchasing activity. Specifically, both Nvidia and Chipotle have upcoming stock splits planned for June.
As shares of each continue to rise, investors may have a hard time determining which company represents a more compelling position in the long term.
Let’s break down the benefits and opportunity costs of owning each stock, and assess which one seems like the best choice.
The case for and against Nvidia
The chart below illustrates Nvidia’s revenue, gross profit, and net profit over the past 10 years. It is clear that there has been excessive growth in recent years compared to previous periods.
It’s no secret that Nvidia is a major player in the field of artificial intelligence (AI). The company’s graphics processing units (GPU) H100, A100 and Blackwell are in high demand, including from customers Tesla And Metaplatforms.
What’s really striking about the trends above is that Nvidia’s growth is accelerating, both on the top and bottom lines. By generating excess cash flow, Nvidia can reinvest profits in other growth engines and strengthen its long-term roadmap.
While this is all positive, there are some risks that need to be acknowledged. For now, Nvidia has an estimated 80% share of the AI ​​chip market.
However, the increasing competition from Intel, Advanced micro devicesand even big tech companies like Amazon and existing customers like Meta pose a threat. Each of these companies is developing its own line of chips, which should ultimately capture Nvidia’s leadership lead.
The case for and against Chipotle
Chipotle is best known for its tasty burrito wraps and bowls. With 40 million rewards members, Chipotle has undoubtedly built a loyal customer base with strong brand equity.
One of the ways Chipotle has been able to capture the attention of so many consumers is due to the company’s investments in digital sales strategies.
Like Nvidia, Chipotle has been able to finance an extremely profitable operation. The digital sales channels have contributed to meaningful margin expansion, which in turn has led to the bottom line. While these financial results are encouraging, Chipotle stock does come with some risk.
Macroeconomic factors such as inflation and interest rates can affect virtually any business. While Nvidia is certainly not immune to these factors, I’d say a restaurant chain like Chipotle is more susceptible.
Trends in consumer goods are very sensitive and can fluctuate from year to year. I would encourage investors to think about that dynamic as it relates to long-term growth prospects.
And the winner is?
The final part of this analysis revolves around valuation. As seen in the chart below, the price-to-earnings (P/E) ratios of Chipotle and Nvidia illustrate vastly different trends.
Over the past year, Chipotle’s price-to-earnings ratio has increased significantly and now stands at 65.7. In contrast, Nvidia’s price-to-earnings ratio is much lower than a year ago.
Another way to look at this is to understand that while every stock has risen sharply over the past year, Nvidia stock is technically cheaper than it was 12 months ago. Why? Because the company’s earnings growth exceeds the acceleration of its stock price.
Ultimately, Chipotle and Nvidia are two very different companies.
The fact is that fast-casual dining at Chipotle is a luxury purchase. While the above business results indicate that the company can grow, it’s important to remember that Chipotle sells burritos – it’s not exactly a proprietary company.
On the contrary, Nvidia sells a product that companies of all sizes need. And while there is competition, I think there are stronger longer-term secular tailwinds fueling AI, unlike the food industry. At the very least, Chipotle could become an Nvidia customer if the company doubles down on its technology investments.
Put another way, AI is so prolific that its applications span a variety of industrial sectors, including the food and beverage industry. However, I don’t think the opposite is true. I don’t see many reasons why Nvidia would ever become a Chipotle customer.
Given the growth story around AI, coupled with Nvidia’s attractive valuation, I think the company is the better option compared to Chipotle.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Meta Platforms, Nvidia and Tesla. The Motley Fool holds positions in and recommends Advanced Micro Devices, Amazon, Chipotle Mexican Grill, Meta Platforms, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 relying on Intel and short May 2024 $47 relying on Intel. The Motley Fool has a disclosure policy.
Nvidia vs. Chipotle: Which Could Be the Better Stock Split to Buy Now and Hold for the Next 10 Years? was originally published by The Motley Fool
