Nvidia’s Stock Surge: Will the Momentum Last?
There are few things more exhilarating than watching a stock you own skyrocket. As the current poster child of vertical ascent, Nvidia stands unrivaled. If you have owned Nvidia, congratulations. What you don’t know, of course, is the likelihood that the hot streak will last. Perhaps a look at data about past winners will shed some light.
Five years ago, Nvidia stock was $37. Today it trades at $891. That’s over a 2000% gain, compared to 83% for the S & P 500. The past two years have also been incredible for NVDA, with the chip-stock even accelerating since the start of 2024.
To determine whether hot streaks persist with high-octane stocks, a study screened 12-month periods, going back 20 years. The goal was to select stocks that had surged at least 200% during one of these years and to observe their performance in the following year.
The analysis offers scant evidence that outstanding stocks continue their upward momentum, but neither are they more likely to fall in the second year. They move almost equally in both directions. The data suggests that while tremendous market strength in one year does not predict the direction of a stock in the subsequent year, identifying super-charged forward earnings growth may well correspond with price outperformance.
Of the stocks that outperformed the S & P 500 in the second year, there was a strong correlation between earnings growth and high returns. This data suggests that while tremendous market strength in one year does not predict the direction of a stock in the subsequent year, identifying super-charged forward earnings growth may well correspond with price outperformance.
So, what does this mean for Nvidia? The 2024 and 2025 calendar year estimates for the company are $2.14 and $24.00, or roughly double. Does that mean buying NVDA is safe, because of that earnings growth rate? The statistics outlined above would suggest the answer is yes, but this market is so hyped over NVDA’s GPU chips that it may have already priced 100% growth in EPS this year.
In conclusion, what any super-charged stock from one year needs is the ability to outearn or outgrow its most optimistic estimates. Otherwise, it may fall into the underperforming bucket, along with the majority of its peers. Investors in Nvidia will have to keep a close eye on earnings growth and market expectations to see if the momentum can continue.
