3 Stocks With NVIDIA-Like Return Potential

Shares of NVIDIA (NVDA +2.43%) have more than tripled over the last year, but investors and analysts are divided over how sustainable those gains might be.

To help you find a great growth stock with NVIDIA-like return potential, we asked a panel of top Motley Fool contributors for their best multibagger ideas.

Read on to see why they selected Sierra Wireless (SWIR +0.00%), Cirrus Logic (CRUS 0.13%), and Acacia Communications (ACIA +0.00%).

Image source: Getty Images.

Temporary trouble

Tim Green (Acacia Communications): It's impossible to know exactly which small technology company is going to turn into the next NVIDIA, registering tremendous returns as revenue and profits soar. Acacia Communications, a provider of optical interconnect products used by cloud infrastructure providers and communication service providers, certainly has the potential, with the added bonus of a knocked-down stock price partly due to temporary issues.

Acacia's top and bottom lines have grown swiftly in recently years. Revenue doubled in 2016 to $478 million, and net income jumped to $132 million from just $41 million in 2015. The company has hit a major roadblock, though, that has put a halt to this impressive growth. Weak demand from China, which is affecting the entire industry, has led Acacia to guide for a steep revenue decline during the second quarter.

ACIA data by YCharts.

Shares of Acacia are down 63% from their peak, and the stock trades for a little over 14 times 2016 earnings. Obviously, earnings are going to take a hit due to lower sales from China. But if this turns out to be a truly temporary issue, which looks likely, Acacia stock could soar once demand picks up.

Winners keep on winning

Steve Symington (Sierra Wireless): I pounded the table for investors to buy Sierra Wireless in late February, despite the fact that shares were already up big following a solid fourth-quarter report. Then I did the same thing around this time last month, even after the stock had popped 15% a few days earlier on the heels of the company's strong first-quarter 2016 results. All told, Sierra Wireless stock is up nearly 90% year to date as of this writing. 

But I'm a firm believer that winners tend to keep on winning. For perspective, consider that NVIDIA's more than 350% climb since the beginning of 2016 -- including a 40% rise so far in 2017 -- came after shares of the graphics chip specialist popped 64% in 2015. Those stellar gains came as analysts on Wall Street consistently, repeatedly underestimated NVIDIA's ability to grow both its top and bottom lines.

I think Sierra Wireless investors are poised to enjoy a similar cycle. Not only has demand for Sierra Wireless' core OEM solutions business significantly improved (revenue rose 10% to $133 million), but it also saw traction from its smaller enterprise solutions segment (where revenue climbed nearly 45% to $21.7 million) with the help of new products, investments in driving growth, and contributions from complementary acquisitions.

In addition, while growth at Sierra Wireless' younger cloud and connectivity segment remains modest (with Q1 revenue up 2.1% to $7.1 million last quarter), its growing pipeline should eventually make it a valuable source of incremental business to drive surprising upside over the long term.

So in the end, I think investors willing to buy even after Sierra Wireless' recent rise could still enjoy NVIDIA-like returns.

Great growth now -- and in the future, too

Anders Bylund (Cirrus Logic): NVIDIA's skyrocketing share prices are certainly impressive, but there's no guarantee that the kinds of gains the stock has seen in 2016 and 2017 will last. If you stretch out your horizon to the last five years and also include forecasts for the next half-decade, I would argue that Cirrus Logic already matches NVIDIA's returns -- and with a far more stable outlook for the future to boot.

Here's what I mean:

Data source: FinViz.

NVIDIA is enjoying an unusual boom right now. A successful update of the company's core graphics-chip platform coincided with rising interest in exactly that kind of computing power from emerging markets such as artificial intelligence and automotive computing. Those market opportunities are real, but NVIDIA needs its platform updates to continue delivering on the company's promises -- not exactly a shoo-in in light of NVIDIA's hit-and-miss history.

Cirrus Logic, on the other hand, is leveraging its market-defining success as Apple's preferred audio-chip provider into a wider reach. In 2016, Cirrus counted Samsung as a 10% customer for the first time ever and is exploring similar expansions with other smartphone makers as well.

The same fundamental audio-processing technology that took Cirrus this far is now poised to increase the company's exposure to a new batch of clients. The company is also working on applying its high-quality audio solutions to brand-new markets such as smart-home systems and in-car infotainment platforms. Cirrus is happy to provide additional design work for customers with highly specific requirements, but its existing portfolio of audio processors is plenty good enough to win many contracts in those expansion markets.

So I wouldn't be surprised to see NVIDIA's hectic growth trailing off in the near future, while Cirrus Logic looks like a high-growth play for the long run -- with or without that juicy Apple contract.

Meanwhile, Cirrus Logic shares are on sale relative to NVIDIA's nosebleed valuation. Cirrus trades at just 18 times trailing earnings, or about one-third of NVIDIA's 54 times P/E ratio. Which stock would you rather own? It's really no contest for me, and an easy win for Cirrus.