Let's face it: 2023 has been an incredible year for the stock market. Every which way you turn, there are stocks breaking out to new 52-week highs.
Yet, some investors might fear that a few well-known names have run too far, too fast. Let's look at three stocks that have skyrocketed in 2023 and see if there is still time to jump on board.
Image source: Getty Images.
Nvidia
To kick things off, let's begin with the hottest stock of 2023: Nvidia (NVDA -3.72%). The company tops all Nasdaq-100 and S&P 500 components with a staggering 205% year-to-date return.
Nvidia -- and its investors -- can thank ChatGPT and the ensuing artificial intelligence (AI) mania that has driven the stock market higher this year. As the world's premier maker of graphics processing units (GPUs), Nvidia has seen demand for its products skyrocket. Analysts now expect Nvidia's sales to grow 61% this fiscal year (the 12 months ending on Jan. 29, 2024).
But this raises two big questions for investors today:
- Will the actual demand for AI live up to the hype?
- Will Nvidia capitalize on the opportunity?
As for the first question, all signs indicate that the surge in AI demand is real. Advanced Micro Devices, for example, noted that customer AI engagements soared a startling sevenfold in its most recent quarter. Clearly, organizations want more AI, and they want it now.
The second question is a different matter. Nvidia is the clear leader in AI chips. The company's GPUs have long been sought out as the best for training large language models and supercomputers.
However, competitors are circling. AMD is launching a new AI chip, the MI300X, this fall. Intel is targeting a 2025 release for its Falcon Shores chip. And given how lucrative the AI chip market is, other deep-pocketed players may also enter the space.
In short, Nvidia has a significant competitive advantage -- for now. Yet, if competitors eat into Nvidia's market share or if the AI market shows even a hint of cooling off, Nvidia stock could tumble fast. The stock is trading at an eye-popping 44 times traiing 12 month sales. That's simply too high to sustain in the long term.
So, with its closest competitor, AMD, trading at much more reasonable 9 times price-to-sales, Nvidia's premium seems solely the result of it being the best-positioned right now to take advantage of the latest AI boom. However, for the whole of AI and its known range of potential, it's still early days with an evolving landscape and plenty of competitors eyeing a share of the pie. That means, paying that much premium for a single company y
Adobe
With a 57% year-to-date return, Adobe (ADBE -0.31%) is firing on all cylinders. Similar to Nvidia, the AI revolution has carried Adobe higher, as the company has announced various AI-powered features for its iconic software applications, such as:
- Generative fill and recolor features in Adobe Photoshop and Adobe Illustrator
- Firefly, an AI generator for Adobe Illustrator
- Super resolution within Photoshop AI
There are, however, some key differences between Nvidia and Adobe. Most notably, Adobe's stock remains far more reasonably priced. Shares trade at a P/S ratio of 13. And while that's not very low, it's still below the company's five-year average of 15.
ADBE PS Ratio data by YCharts.
What's more, growth expectations for Adobe are more tempered. Analysts expect flat year-over-year sales in 2023 and 12% revenue growth in 2024.
So, even with a 56% rally behind Adobe, investors can rest assured that the stock remains affordable and its growth expectations seem reasonable. I still think long-term investors can accumulate shares now.
Tesla
Well, I think it's safe to say that Elon Musk's purchase of Twitter hasn't hurt Tesla (TSLA -1.30%). Shares of the electric vehicle (EV) maker have ripped higher by over 100% this year.
As always, Tesla remains a polarizing stock. For bears, the current obsession is that Tesla's declining margins illustrate that the best days are behind the world's largest automaker (by market cap). For bulls, Full Self-Driving (FSD) and robotaxis are the next big hurdle that will catapult Tesla's market cap to over $1 trillion.
Somewhat lost in this debate is that Tesla remains a young company still growing by leaps and bounds. Sales are forecast to grow 11% this year and 24% next year as new factories and vehicle models (such as the Semi and Cybertruck) come online.
So, for long-term investors, Tesla remains a stock worth owning through volatility. Like Adobe, Tesla's P/S ratio of 10 is still below its five-year average of 11. And while shares are no longer dirt cheap, they're nowhere close to all-time highs. That means investors can still buy now, particularly if -- like me (and Cathie Wood) -- you think FSD will become a reality sooner rather than later.
