We recently compiled a list of the 8 Best Momentum Stocks To Invest In Right Now. In this article, we are going to take a look at where NVIDIA Corporation (NASDAQ:NVDA) stands against the other momentum stocks.
U.S. Labor Market Remains Resilient
After the Fed’s rate cut and a positive inflation report, the latest jobs report also showed better-than-expected results. In an interview with Yahoo Finance, Elise Gould from the Economic Policy Institute discussed the latest employment data as she highlighted the continued strength of the U.S. labor market.
Payroll employment increased by 254,000 in September, with revisions adding 72,000 jobs from previous months. The unemployment rate remained stable at 4.1% and showed declines among various demographics, especially among men.
Gould emphasized that the prime-age employment-to-population ratio is at a 23-year high, which shows a strong economy. Despite wage growth reaching 4%, she downplayed concerns that this could lead to inflation and mentioned improvements in productivity and a low labor share of corporate income.
She expressed confidence in the labor market’s strength and suggested that it may influence the Fed’s decisions on interest rates. She also believes that the Fed should normalize rates, which remain high historically given current employment levels.
Gould observed that the overall labor market is strong, but not excessively heated, as shown by softer job turnover rates.
Economic Resilience and Its Impact on the Stock Market
At CNBC’s Closing Bell, Wharton finance professor Jeremy Siegel discussed the impact of the recent economic data on the stock market. He noted that while 550,000 jobs were added in the third quarter, wages remained flat, leading to a GDP growth projected at 2.5% to 3%.
Siegel believes that the Federal Reserve will likely implement smaller rate cuts of 25 basis points rather than larger cuts and will aim for a long-term neutral rate of about 3.5% by the second half of next year.
He expressed optimism regarding the stock market and suggested that the S&P 500 could reach 6,000 by year-end. However, he mentioned that higher yields may present challenges.
Despite concerns about equity valuations appearing high, Siegel pointed out that with cash still abundant and a resilient economy, the market remains attractive. He acknowledged that while the forward earnings ratio for the market is around 21.5x, it is not expensive in the current economic climate. He emphasized the absence of recession indicators and the potential for earnings growth and suggested that while significant market gains may not be expected, there is still room for growth.
Our Methodology
For this article, we looked at the October 2 holdings of iShares MSCI USA Momentum Factor ETF and narrowed our list to 8 stocks most widely held by institutional investors. The best momentum stocks to invest in are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) is a leading company in the technology sector, well known for its work in graphics processing units (GPUs) and artificial intelligence. Originally focused on enhancing the gaming experience, the company revolutionized computer graphics with the release of its GPU in 1999, which significantly improved both video game performance and 3D applications.
Over the years, the company diversified its offerings to include central processing units (CPUs), data processing units (DPUs), and various software solutions for high-performance computing and deep learning. The company now operates in industries ranging from gaming and professional visualization to data centers, automotive, and healthcare. The company tops our list of best momentum stocks.
A major upcoming product from NVIDIA (NASDAQ:NVDA) is the Blackwell line, expected to drive considerable revenue and bring innovations to the industry. With improvements in supply chain conditions, orders for Blackwell products are increasing. CEO Jensen Huang has confirmed that the company is ramping up Blackwell GPU production and aims to begin shipments by the fourth quarter. While some engineering issues may delay certain releases, the company remains on course to scale up production as it moves forward into the next year.
The company is expected to benefit from significant growth driven by the AI-driven data center expansion. At the GPU Technology Conference in March 2024, CEO Jensen Huang estimated annual spending on data center infrastructure at around $250 billion, potentially reaching between $1 trillion and $2 trillion over the next decade.
While the company will face competition from companies such as AMD and AI accelerators developed by Google, Amazon, and Apple, analysts expect NVIDIA’s (NASDAQ:NVDA) data center market share between 2025 and 2029 to exceed $950 billion. Despite the competition, the company is expected to be the dominant force in the market.
NVIDIA (NASDAQ:NVDA) also recently introduced its new series of multimodal large language models, NVLM 1.0, which performs at the highest level on both vision-language and text tasks.
According to the company, it competes with top proprietary models like GPT-4o and open-access ones such as Llama 3-V 405B and also improves on text-only tasks after multimodal training. The model weights and training code are being made open-source through Megatron-Core.
The model excels in various multimodal tasks, such as following instructions, recognizing humor, reasoning, and solving math problems step-by-step. It uses a hybrid architecture that improves training efficiency and accuracy, along with a unique 1-D tile-tagging design for high-resolution image tasks.
The company’s LLM stands as a new major competitor in the industry that META and Alphabet dominated.
Generation Investment Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“Recent net performance is behind market averages. However since the fund’s inception, we have spent only about 8% of the time underperforming on a rolling five-year basis.1 We do not enjoy these spells. A number of different factors has contributed to the current period of underperformance. The fact that we do not own NVIDIA Corporation (NASDAQ:NVDA) is one. That single company accounted for roughly 25% of returns in the benchmark so far this year, meaning almost everyone who does not own Nvidia has lost out. Year-to-date, not owning Nvidia explains about a third of our relative underperformance.
Nvidia is, clearly, an earnings juggernaut. In the past year its revenue has more than tripled, as cloud companies load up on hardware to power AI models. So while its earnings multiple has increased, we are not seeing a repeat of the dotcom mania of the late 1990s. This company’s valuation is backed by cold, hard cash…” (Click here to read the full text)
Overall NVDA ranks 1st on our list of the best momentum stocks to buy. While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.