Is NVIDIA Corporation (NASDAQ:NVDA) The Best High Growth ...

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 S&P 500 has gained 92% during the time period. Despite this stunning growth, the AI onset has led AMD to have a trailing P/E ratio of a whopping 232.51 (forward P/E is 45.66, which is precisely in tune with the sector's 45.77). Between 2010 and 2025, AMD's profitability trend started in 2018, and saw the P/E ratio jump to 515 in early 2023 when earnings took a hit from a glut in the semiconductor industry. AMD's eight cents of EPS in the third quarter of 2023 also meant that as the market bumped its valuation due to AI, the P/E ratio soared 1,285 - making it a classic example of a fast growth stock.

Our Methodology

To make our list of the best fast growth stocks, we first narrowed down the 20 stocks that had the highest trailing P/E ratios and five year and quarter over quarter revenue growth greater than 30%. These were ranked through the number of hedge funds that had bought the shares in Q1 2024 according to Insider Monkey's data of hedge fund holdings. Moreover, for each of these stocks, we looked at how many hedge funds from our database held shares according to the last round of 13F filings. 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).

Number of Hedge Fund Investors In Q1 2024: 186

TTM P/E Ratio: 62.12

AI and semiconductor stock NVIDIA Corporation (NASDAQ:NVDA) tops our list of the best fast growth stocks, which is unsurprising if we're honest. NVIDIA Corporation (NASDAQ:NVDA)'s shares have soared by triple digit percentages over the past year, and this has also been the case for its revenue and profit. The latest set of results for the first quarter saw NVIDIA Corporation (NASDAQ:NVDA) beat analyst revenue estimates of $24.6 billion by posting $26 billion. Adjusted EPS of $6.12 beat analyst estimates of $5.59.

By Q1 2024 end, 186 out of the 933 hedge funds part of Insider Monkey's database were NVIDIA Corporation (NASDAQ:NVDA)'s stakeholders. Rajiv Jain's GQG Partners held the largest stake which was worth $12 billion.

NVIDIA Corporation (NASDAQ:NVDA) ranks first on our list of the best high growth stocks to buy according to hedge funds. Click to see the 10 Best Fast Growth Stocks To Buy Now. NVDA is now a $2.8 trillion company and trades at a forward PE of 41. Assuming that its extremely high growth rate continues for a few more years, this is a very cheap stock. This is a big assumption that hedge funds and other investors are betting on right now. The market is assuming that NVDA will earn nearly $70 billion over the next 12 months, $100 billion in 2 years, $150 billion in 3 years, and then grow those profits at high single digits for the foreseeable future (the same rate S&P 500 companies grow their earnings annually). I think the probability of this happening is less than 50% as NVDA needs to defend its moat for a couple of decades which is a very long time in the tech industry. Intel couldn’t defend its moat for two decades and now trades at less than NVDA’s 2026 expected earnings. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.