Worried you missed the Nvidia bandwagon? Here are some alternative stock picks.

By Philip van Doorn

Over the past year, Nvidia's rolling 12-month consensus earnings estimate has increased even more quickly than its share price

Nvidia Corp.' s stock has returned 162% this year through Thursday with dividends reinvested, while it has more than tripled from a year ago.

Does this mean it is too late for you as an investor to jump on the bandwagon? It might. But in lieu of this, there are some alternative stocks that may offer good value, as you'll find listed below.

Then again, this all depends on your opinion. Nvidia (NVDA) doesn't yet face significant competition for graphics processing units (GPU) being implemented by data centers to support their corporate clients' efforts to develop new artificial-intelligence technologies. How long might this continue?

"This is the biggest question the market has," according to Greg McCullough, who co-manages the Putnam Large Cap Growth Fund PGOYX. In an interview with MarketWatch last month, MCullough noted that a year earlier, there had been some concern among investors that Nvidia might not be able to maintain its incredible growth pace. "We are past that concern now," he said.

During the same interview, McCullough's colleague Richard Bodzy said that he expected increased competition, but also said that a "first-mover advantage, incumbency and new-technology innovation should allow Nvidia to maintain [its] leadership position." He added that the Putnam Large Cap Growth Fund was also holding shares of Advanced Micro Devices Inc. (AMD) and Broadcom Inc. (AVGO)

Nvidia reported sales of $26.04 billion for its fiscal quarter ended April 28, which was an increase of 18% from the previous quarter and up 262% from a year earlier. The year-over-year comparison might not be meaningful, as the company is essentially dominating the new-GPU category.

Read: As Nvidia's stock split takes effect, this stat shows how far it's come

Nvidia's incredible growth pace has led to a dramatic increase in its stock price. There are various ways to measure a stock's valuation. One common way of doing so is to divide the current price by the consensus estimate for earnings per share over the next 12 months. On this basis, Nvidia's stock appears to be expensive. But let's take a closer look at that ratio, while comparing it to the weighted forward price-to-earnings ratio for the S&P 500 SPX:

   Company or index    Forward P/E  Forward P/E one year ago  Year-over-year increase in rolling 12-month consensus EPS estimate 
   Nvidia Corp.               43.3                      48.3                                                              256.4% 
   S&P 500                    20.8                      19.1                                                               12.4% 
                                                                                                                 Source: FactSet 

One might argue that you get what you pay for. Nvidia's stock appeared to be expensive on a forward P/E basis a year ago, and now its valuation by this measure has declined, while that of the S&P 500 has increased. In other words, Nvidia's share price hasn't increased as rapidly as its rolling consensus EPS estimate.

A consistent "beat-and-raise pattern," with companies exceeding quarterly estimates among analysts working for brokerage firms, can support rising share prices over time. Analysts react to the reports and to companies' guidance by increasing their earnings estimates and price targets. This pattern has been ongoing for Nvidia.

Screening for other companies expected to rival Nvidia for growth

With so much growth already baked in, let's look further ahead. We can use consensus estimates for calendar years, as adjusted by FactSet. This makes for a uniform data set, which is useful because about 20% of companies in the S&P 500 have fiscal years that don't match the calendar.

To focus on expected rapid growth, let's look at sales estimates. Profits for any one year can be affected by one-time events or accounting adjustments. A rapid grower also might not be profitable.

Consensus estimates for annual revenue through 2026 are available from FactSet for 480 companies in the S&P 500. Here are the 20 companies expected to show the highest compound annual growth rates (CAGR) for revenue from 2024 through 2026. The table also includes expected growth rates for earnings per share, as well as forward P/E ratios (again, based on current share prices and 12-month EPS estimates) and those a year earlier. It also includes one-year returns with dividends reinvested.

   Company                              Ticker   Two-year estimated sales CAGR through 2026  Two-year estimated EPS CAGR through 2026  Forward P/E  Forward P/E one year ago  One-year stock return through June 13 
   Enphase Energy Inc.                   ENPH                                         33.2%                                     47.0%         32.9                      28.0                                   -28% 
   EQT Corp.                             EQT                                          26.4%                                     84.8%         16.0                      11.3                                    16% 
   Nvidia Corp.                          NVDA                                         25.8%                                     26.1%         43.3                      48.3                                   233% 
   Moderna Inc.                          MRNA                                         24.9%                                    -46.6%          N/A                       N/A                                   -32% 
   Diamondback Energy Inc.               FANG                                         24.3%                                      3.8%          9.5                       6.8                                    50% 
   Advanced Micro Devices Inc.           AMD                                          23.6%                                     43.1%         35.7                      36.2                                    77% 
   First Solar Inc.                      FSLR                                         21.9%                                     47.3%         16.2                      20.2                                   -12% 
   ServiceNow Inc.                       NOW                                          20.8%                                     21.6%         49.5                      52.4                                    63% 
   Take-Two Interactive Software Inc.    TTWO                                         20.8%                                     83.1%         42.7                      31.9                                    23% 
   Teradyne Inc.                         TER                                          20.7%                                     43.3%         37.2                      31.0                                     5% 
   Eli Lilly and Co.                     LLY                                          20.5%                                     35.5%         54.6                      43.7                                   105% 
   Axon Enterprise Inc                   AXON                                         20.4%                                     21.2%         57.8                      58.0                                    40% 
   Tesla Inc.                            TSLA                                         19.4%                                     34.5%         63.9                      64.3                                    -5% 
   CoStar Group Inc.                     CSGP                                         18.5%                                     86.2%         81.1                      60.2                                    32% 
   DexCom Inc.                           DXCM                                         18.3%                                     24.1%         57.5                      98.9                                    19% 
   Monolithic Power Systems Inc.         MPWR                                         18.1%                                     22.5%         54.7                      42.1                                    42% 
   Insulet Corp.                         PODD                                         17.7%                                     23.7%         58.4                     158.9                                   -45% 
   Blackstone Inc.                        BX                                          17.0%                                     20.3%         22.7                      17.9                                    54% 
   Lam Research Corp.                    LRCX                                         16.6%                                     21.7%         28.6                      24.2                                    95% 
   Palo Alto Networks Inc.               PANW                                         16.5%                                     12.7%         51.8                      47.8                                    43% 

An "N/A" for P/E means the earnings estimate in the denominator is (or was) negative.

Nvidia ranks third on this list. Considering that its stock was trading at a high P/E a year ago - as well as how much it has gone up since then, and the fact that its P/E is a bit lower now - it might not be too late to buy Nvidia. And if you hold shares in an index fund, you are already a major investor. For example, Nvidia makes up 7% of the SPDR S&P 500 ETF Trust SPY.

Nobody knows how long Nvidia can maintain this growth pace, as it maintains a lock on the GPU market and other companies are spending heavily on AI-technology development. Even professional money managers cannot predict how the AI trend will play out. If you have a strong opinion about AI, it might help you to make a good decision about Nvidia.

(MORE TO FOLLOW) Dow Jones Newswires

06-15-24 0700ET

Copyright (c) 2024 Dow Jones & Company, Inc.