Despite a recent dip, it's been a historic year for the Nasdaq 100. Through the first eight and a half months of the year, the index is up 34%. That's the best yearly performance since 2020, when it finished the year with a 48% return.
However, with a little over three months left in 2023, is now the time for investors to double down on the best performers in the Nasdaq 100?
Let's look at the top three: Nvidia (NVDA 6.18%), Meta Platforms (META 0.43%), and Tesla (TSLA -1.11%).
Image source: Getty Images.
Nvidia
Topping the Nasdaq 100 is Nvidia, with a staggering 185% year-to-date return, and that's down from its peak year-to-date return of 238%.
Nevertheless, Nvidia, a maker of graphics processing units (GPUs), remains the center of attention on Wall Street. The publicity around artificial intelligence (AI) might have cooled off slightly from earlier in the year, but Nvidia's results and guidance certainly have not.
In its most recent quarter (the three months ending on July 30), the company reported $13.5 billion in revenue, doubling its year-ago total. Even more impressive, net income surged to $6.2 billion, up from $656 million a year ago. Nvidia can thank skyrocketing data center demand for AI chips, led by its own A100 and H100 GPUs.
All that said, Nvidia's enormous growth has driven its price-to-sales (P/S) ratio up to astronomical levels. Even after retreating from its year-to-date highs, Nvidia's P/S stands at 31, more than 50% above its five-year average of 19. Growth-oriented investors beware: This highflier carries more than a little downside risk given its rich valuation.
NVDA PS ratio data by YCharts.
Meta Platforms
Second on the list is Meta Platforms, the parent company of Facebook and Instagram. Shares are up 149% year to date, thanks to renewed strength in the digital advertising market.
In its most recent quarter (the three months ending on June 30), Meta reported revenue of $32 billion, topping analyst estimates and up 11% year over year.
Key user metrics showed marked improvement: Daily active users and monthly active users both beat analyst expectations, rising to 2.06 billion and 3.03 billion, respectively. Moreover, average revenue per user, a key metric for social media companies, rose above expectations to $10.63, demonstrating Meta's remarkable ability to monetize its vast user base.
Crucially for investors, Meta's stock remains affordable. Shares trade at a P/S of 6.5, still below the company's five-year average of 7.5. Granted, concerns remain, not least of which is whether the digital ad market will dry up in the face of renewed inflation or a recession.
But investors should be reassured that in the long term, Meta's hold on the digital advertising market remains strong and should deliver solid returns for years to come.
Tesla
Rounding out the top three is Tesla, with a year-to-date return of 99%. After a tumultuous 2022 that saw Tesla's stock tumble 65%, Elon Musk and company have turned things around.
Vehicle deliveries in the second quarter (the three months ending on June 30), rose to 466,000, putting the company on track to deliver 1.8 million vehicles this year. Revenue for the second quarter rose to $25 billion, up 47% year over year. Granted, margins remain a concern: Its gross margin sank to 18.2% and operating margin fell to 9.6%, the lowest figures since 2021, as this year's price reductions have weighed on results.
Nevertheless, with more vehicles on the road than ever before, the company is starting to see compounding benefits to business segments outside of vehicle production.
For example, the Services and Other segment generated $2.2 billion in revenue during its most recent quarter, partly due to fees for repair of lapsed-warranty vehicles. Similarly, Tesla's Energy Generation and Storage segment increased 74% to $1.5 billion.
Even with this year's run-up in its stock price, shares remain relatively cheap by historic standards. With a P/S of 9, they still trade below their five-year average of 11, and are far below their all-time high of 30, achieved in 2021. Moreover, the ongoing autoworkers' strikes present Tesla, which is not unionized, with a further competitive advantage over its domestic rivals, which may need to make wage concessions to labor.
In summary, investors might want to consider Tesla now, while its stock valuation remains low by historic standards.
