We recently compiled the list of the 10 Best Fast Growth Stocks To Buy according to the hedge funds using the latest sentiment data. In this article, we are going to take a look at where NVIDIA Corporation (NASDAQ:NVDA) stands against the other fast growth stocks. Recently Baron Funds said the following about NVIDIA Corporation:
“NVIDIA Corporation (NASDAQ:NVDA) remains the Fund’s largest position. We believe NVIDIA continues to be at the epicenter of one of the biggest technological paradigm shifts of the last 50 years as computing is shifting from sequential to accelerated and as we begin to see the early stages of the use cases of generative AI (GenAI) enter the mainstream. Is GenAI real? Is it going to be material, sustainable, and disruptive? Will NVIDIA (and other GenAI leaders and disruptors) likely benefit from this disruptive change? Our research suggests that the answer to all of these questions is an unequivocal – yes”
You can see Baron Funds’ entire comments here.
Growth stocks are those that are either growing their revenue in mid to high double or triple digit percentages or those who trade at significantly higher prices when compared to their earnings. Using a high P/E ratio is the more commonly accepted definition of growth stocks, and sometimes, investors are richly rewarded for their faith.
While we’ll get to the specifics later, there are several stock indexes and exchange traded funds that track growth stocks. Some of the more popular growth stock indexes and ETFs are Vanguard Growth Index Fund Admiral Shares (VIGAX) ETF and the S&P 500 Pure Growth stock index. The performance of these ETFs and indexes depends, for most part, on the economic climate. A well known investment principle is that growth stocks perform well when interest rates are low and consumers and businesses are able to comfortably splurge for pricey products and services.
Year to date, the Vanguard Growth Index Fund Admiral Shares (VIGAX) and the S&P 500 Pure Growth index are up by 15% and 12%, respectively. This allows the S&P stock index to match the benchmark index in performance, while the Vanguard Fund has gained more since the S&P is up by roughly 12% year to date.
Over the past twelve months, a period characterized by high but stable interest rates, easing inflation, robust economic growth, and the AI boom, the S&P 500 has gained 27.7%. The index bottomed in October 2023 and so did our ETF and index. The Vanguard ETF is up by 34.9% over the year, and the S&P Pure Growth index has lagged the broader index through its 24% gains. Compare these all around rosy figures with the 32% that the index lost between January 2022 and June 2022 and the additional 32% bled by the ETF and you’ll see how growth stocks are sensitive to high rates and inflation.
Therefore, trying to see where interest rates are heading would also serve one well when talking about fast growth stocks. On this front, one ‘proxy’ that can be used to gauge investor sentiment is the Russel 2000 index. This is a small cap stock index, and if investors become optimistic about lighter rates, then the shares rise since smaller firms are often more at risk from higher rates than corporate titans.
Small-cap stock indices have been relatively flat year to date by having registered an unimpressive 2% in gains. This is unsurprising as the year has seen Wall Street progressively tone down rate cut expectations. However, from mid April to late May, the small caps have gained 6%, so perhaps the winds are changing for interest rates. However, this hasn’t been the case, since two of its strongest performing stocks have posted 100%+ in gains. One of these is a fast growth stock when compared to the broader benchmark multiple.
This stock is none other than the rather infamous Super Micro. If you’re unaware, Super Micro has been caught in the market’s artificial intelligence surge too since it is a semiconductor stock. It has a trailing twelve month price to earnings ratio of 49.27 which is high compared to the commonly accepted definition of a growth stock. However, Super Micro’s P/E ratio is lower than the semiconductor sector average of 82.75. The market trailing P/E for this data set is 52.28, and it represents 94 sectors. Within these sectors, 26 have a higher trailing P/E ratio than the market ratio, and among these, nearly half have a higher trailing P/E ratio than the semiconductor industry. However, the higher value for semiconductors is a clear example of how artificial intelligence has transformed the market.
Yet, even before AI was a part of daily media coverage, semiconductor stocks had already given us a historic growth story. This comes in the form of the chip designer AMD. AMD’s shares are up by a whopping 506% over the past five years, while the…
Read More: Is NVIDIA Corporation (NASDAQ:NVDA) The Best High Growth Stock To Buy According