Financial services company Robinhood has enjoyed unprecedented success this year, partially as a result of its stock-trading app with an easy-to-use interface and no-fee trading options. According to Barron's, the company has been responsible for half of all new online investment accounts opened during the first six months of 2020. Robinhood processed more than 4 million transactions a day during the month of June alone -- more than any other online broker.
A significant portion of the online broker's users are investing novices, enticed by the unprecedented market volatility of the past several months to try their hand at investing, and not always with the most promising results.
That said, not all the choices these particular traders make have been questionable. In fact, three stocks found near the top of the Robinhood charts (which list the most widely held stocks among users) have the potential to make investors rich. And you don't need the resources of billionaires like Bill Gates or Warren Buffett to access them.
If you have as little as $1,500 that you don't need to bulk up your emergency fund or for immediate expenses, putting it to work buying these three top stocks could make you a small fortune over time.
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1. NVIDIA: Gaming and so much more
Several smart Robinhood investors have been adding NVIDIA (NVDA -1.16%) to their portfolio over the past 30 days. An impressive 18,656 of the platform's users have bought shares of the graphics processing specialist over the past month, bringing the total to 157,881. NVIDIA has turned heads in 2020, with its stock more than doubling since the beginning of the year, no doubt putting the company on Robinhood users' radar.
What pushed NVIDIA stock to trade so high? The implementation of stay-at-home orders surely played a part, driving up demand for the company's graphics processing units (GPUs), as a large number of consumers sought refuge in video games.
That alone would have been enough to boost NVIDIA's share price, but the good news didn't stop there. The large-scale adoption of remote work and the big push toward cloud computing helped supercharge the company's results, as NVIDIA's GPUs are the workhorse of choice among data centers, cloud computing, and artificial intelligence systems, all of which is reflected in the stellar growth of company's data center segment.
NVIDIA's recent results tell the tale. In its fiscal first quarter (ended April 26), revenue grew 39% year over year, while earnings per share jumped 130%. Even more telling for the company's future was the performance of its data center segment, up 80% compared to the year-ago quarter, and growing to account for 37% of NVIDIA's total revenue. Some analysts suspect that the coming quarter will mark the first time data center revenue will eclipse the gaming segment, driven higher by the recent release of its line of Ampere data center chips.
Investors have thus far been willing to pay up for shares of the GPU maker and that can be seen in the stock now trading at a forward price-to-sales ratio of more than 20 (a ratio between 1 and 2 is reflects a stock trading at a fair price). However, with the rapid adoption of cloud computing and its next-gen gaming chips as drivers, that high valuation isn't out of line and NVIDIA's best days are still ahead, making it one of Robinhood investors' smarter picks.
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2. Microsoft: Breathing new life into the old guard
One of the single most popular stocks among Robinhood investors over the past 30 days has been tech titan Microsoft (MSFT -0.17%). An immense 189,812 of the platform's investors have added the tech giant to their accounts in the past month, bringing the total to 653,838. While there's no way to know for sure what caught the eye of these investors, the controversy surrounding social media app TikTok likely played a role.
The Trump administration has labeled the short-form video platform a national security risk to the U.S. due to the personal data collected by TikTok and ByteDance, its parent company in China. Just last week, President Trump issued an executive order giving ByteDance 90 days to divest the popular platform, or face a ban in the U.S. Earlier this month, Microsoft confirmed rumors that it was in talks to buy the TikTok app.
While the ongoing saga was no doubt an attention-getter, there are myriad reasons investors should pony up for Microsoft stock. For starters, there's the company's burgeoning cloud computing business. Growth of its Azure cloud platform has been outpacing its biggest rival, Amazon Web Services (AWS). In the second calendar quarter of 2020, AWS grew 29% year over year, while Azure's growth clocked in at 47%.
Each of Microsoft's major segments contributed last quarter, helping the company boost its overall revenue by 13%, even as a few smaller segments surprised. Xbox content and services surged 65%, while sales of Xbox hardware jumped 49%. The successful quarter helped Microsoft generate $18.7 billion in operating cash flow and free cash flow of $13.9 billion, both up 16%.
This illustrates the ongoing and significant catalysts ahead for Microsoft, so it's little wonder the tech giant is a favorite among Robinhood investors.
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3. Square: Expanding into every corner of the payments world
Another popular stock among Robinhood investors over the past month has been Square (SQ 0.23%). Another 9,736 of the platform's investors bought shares of the payments specialist over the past 30 days, bringing the total to 118,574. Investors were likely intrigued by the company's significant run so far this year, with the stock gaining more than 140% year to date.
While Square is known for its namesake payment dongle, the lingering COVID-19 pandemic has changed the way customers are transacting business. Many are switching to online purchases in lieu of physical retail, with the resultant increases in digital payments, which also plays right into Square's wheelhouse.
The stock's jump was impressive, but there were plenty of strong underlying financial fundamentals that fueled its meteoric rise. Revenue grew 64% year over year in the second quarter, accelerating from 44% growth in Q1. The company has also noted significant shifts in consumer behavior this year, sending use of its Cash App soaring. After achieving a monthly record of net new transacting customers in March, Square set a new watermark again in April, pushing Cash App into the top 10 on the iOS app store in mid-April. That helped the Cash App generate year-over-year gross profit increases of 115% and 167% in the first and second quarter, respectively.
That's not all. The Cash App ecosystem continues to evolve, as transactions per customer increased to 15, on average, up nearly 50% year over year. More than 7 million customers used their Cash Card, up 100% from year-ago levels.
It's worth noting that given the stock's significant gains this year, Square isn't cheap, with the fintech company sporting a forward price-to-sales ratio of 9. However, I would argue it's still a steal, as analysts expect Square's earnings to double between this year and next.
