Nvidia, Tesla, and Amazon are different businesses. But they are all in the same investment basket on Wall Street regarding momentum, promise to change the world, and investment potential.
Still, Nvidia has better sales growth and a higher Economic Value Added (EVA) than Tesla and Amazon and trades at a lower Price-to-Earnings ratio (PE). These metrics make the semiconductor leader a better investment bet.
According to the most recent data, Nvidia’s quarterly revenue grew more than 100% annually, compared to Tesla’s 47.20 % and Amazon’s 10.80%.
Nvidia’s growth is a story of innovation, scale, and scope. Over the years, Nvidia has expanded its product portfolio and entry into several markets, including high-performance computing, data center solutions, the automotive industry, and AI.
“Nvidia’s growth rate has been nothing short of remarkable, outpacing even the impressive trajectories of Tesla and Amazon,” Jon Morgan, CEO of Vebturesmarter.com, told the International Business Times. “This accelerated growth is driven by Nvidia’s pivotal role in several cutting-edge technologies such as artificial intelligence, data analytics, and autonomous vehicles. With its GPUs powering the AI revolution and its foray into various industries, Nvidia exhibits the potential to sustain this growth in the long term.”
As of Aug. 30, Nvidia’s EVA, the difference between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) was 25.28%, Tesla’s 5.21%, and Amazon’s -5.89%.
“When it comes to Economic Value Added (EVA), Nvidia once again takes the lead,” Morgan said, explaining what that means for the company’s competitive edge. “The metric reflects the company’s ability to generate value beyond its cost of capital, indicating efficient resource utilization. Nvidia’s consistent EVA growth underscores its strategic allocation of resources, effective management practices, and continuous innovation, all of which contribute to its competitive advantage.”
Nvidia constantly develops new cutting-edge technologies in industries including gaming, AI, and autonomous vehicles, expanding into new markets through strategic alliances with other technology leaders, including one recently with Alphabet.
In addition, Nvidia is trading with a forward PE of 46.85, well below Tesla’s 75.19 and Amazon’s 60.98 (finance.yahoo.com data), meaning the semiconductor leader is undervalued compared to Tesla and Amazon.
“A lower PE ratio can suggest that a company is undervalued relative to its earnings potential,” added Morgan, commenting on what that means for investors. “Nvidia’s relatively lower PE ratio could imply that investors have yet to fully appreciate its future earnings potential, making it an attractive investment proposition.”
William Giandoni, founder of Strategic Executive Solutions, agrees, citing Nvidia’s lead in the AI revolution. “While Amazon and Tesla have good outlooks, Tesla is releasing the Cyber Truck soon, and Amazon is still driving retail; Nvidia makes the technologies & hardware that will make companies like Tesla and Amazon more efficient.”
“While Tesla and Amazon possess their unique strengths and prospects for revolutionizing industries, Nvidia’s higher growth rate, impressive EVA, and lower PE ratio collectively position it as a more promising investment opportunity,” added Morgan. “Its leadership in crucial technological domains, prudent resource management, and favorable valuation metrics make a compelling case for investors seeking to align their portfolios with transformative innovation.”
Still, Nvidia lags behind Amazon and Tesla in several other financial metrics like cash flow from operations and cash on hand, where Amazon leads with a big margin.
Meanwhile, long-term investors in Nvidia’s shares should cast a wary eye on several risks the company faces in a fast-changing technological universe.
First is the threat of new entrants, especially as the company maintains a tight supply and high prices for its products, the critical factor behind its high ROIC and EVA.
“Nvidia’s strategy of limiting supply and keeping prices high is revenue and earnings bonanza in the short-run,” Paul Kutasovick, Professor of Finance at NYIT, told the IBT. “But it could backfire in the long run. It will invite the entry of new players and loss of market share.”
Second is Nvidia’s reliance on a few big customers, some in China, meaning that its revenues could take a big hit should one or more customers switch to an existing or a new supplier.
Prudent investors should never forget the old Wall Street aphorism: “Past performance is no guarantee for future performance.”
Editor’s note: The writer owns shares of Nvidia and Amazon.
