The market has been making gains this year, with the S&P 500 climbing about 8% year to date. But some growth stocks have outpaced those impressive gains, and could continue to beat the market over the long term as they tap into new growth areas.
For investors trying to determine what stocks could put up market-beating returns in the coming years, Tesla (TSLA 12.06%) and Nvidia (NVDA -3.33%) should be on your list. Here's why.
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1. Tesla
While I won't get points for originality for putting Tesla on this list, there are some very good reasons for investors to consider buying Tesla right now. These reasons include the company's leading position in the EV market and its ability to outpace rivals' EV production.
First, Tesla's early moves into the EV market are paying off. The company currently holds about 50% of the market share in EVs in the U.S., and accounts for 20% of battery electric vehicle sales in Europe.
The company will have to give up some of that market share as traditional automakers make more EVs, but that doesn't mean Tesla is in danger. The company has already proved resilient to an onslaught of rival EV makers, and could continue to do so against traditional automakers.
Consider that in the first quarter of this year, Tesla produced an impressive 440,000 vehicles and delivered 422,000 vehicles, marking increases of 44% and 35%, respectively. This not only shows that demand for the company's EVs is still strong, but also that Tesla's production has all of the right pieces in place to meet that demand.
The result of those climbing deliveries was that sales rose 18% to $19.9 billion in the quarter. Meanwhile, smaller EV rivals, including Rivian and Lucid, are still trying to find their vehicle production footing, and are losing money hand over fist.
The EV market is in a time of transition as higher material costs, rising interest rates, and inflation pressure automakers. But Tesla is meeting those pressures by reducing the prices of some of its vehicles, something its rivals can't do with the same degree of success because they're highly unprofitable.
And as Tesla's production is poised to continue expanding this year, the company is positioned to continue outpacing its competition as the EV market expands to reach 60% of all new vehicles sold in 2030.
2. Nvidia
Nvidia's stock has been flying high recently as some investors have figured out what the company has known for many years: Its graphics processing units (GPUs) are among the best tools for artificial intelligence processing.
Nvidia recently reported its first-quarter results, which were impressive enough considering they topped Wall Street's top- and bottom-line estimates. But the real headline was that Nvidia issued sales guidance for the second quarter of $11 billion, which blew past analysts' consensus estimate of $7.1 billion.
Nvidia CEO Jensen Huang said the company is issuing such optimistic projections because demand for GPUs from its data center segment is soaring. Huang told CNBC that the "flashpoint" for this growth was generative AI, which has become the only thing tech companies can talk about since OpenAI released its ChatGPT chatbot earlier this year.
AI needs massive data processing power, and large tech companies are using Nvidia's GPUs to get the job done. The result is that Nvidia will have a "giant record year," according to comments from Huang on the company's latest earnings call.
Investors may want to pay close attention to what's happening with Nvidia. AI is reaching an inflection point, and Nvidia's GPUs are helping to power this shift. Ark Invest Management estimates that the global AI software market could reach an estimated $14 trillion by 2030, and it's already clear that Nvidia is going to play a large part in its growth.
