In the first three quarters of 2023, shares of tech giant Nvidia (NVDA 0.28%) and social media behemoth Meta Platforms (META 3.22%) -- in that order -- were the two best performers among 500 stocks on the S&P 500 index. This remains true for the year through Oct. 17. (Electric vehicle pioneer Tesla is currently in a fairly distant third place, though this article is just focused on the top two performers.)
For context, the S&P 500 returned 15.4% this year through Oct. 17, while the tech-heavy Nasdaq Composite returned 30.2% over this period.
Before we dig in, it's worth noting that while Nvidia and Meta Platforms operate in different industries, they have two key things in common:
- They're both global leaders in their largest area of focus: Nvidia in technology that enables artificial intelligence (AI) and Meta Platforms in social media.
- They're both run by a founder.
1. Nvidia: 201% return in 2023 so far
Nvidia stock's scorching performance in 2023 is being driven by its fantastic recent financial performance and guidance, along with investor optimism that robust growth will continue. Most of this excitement is centered on the company's leadership position in AI. Its graphics processing units (GPUs) dominate the market for AI chips.
In its second quarter of fiscal 2024 (ended July 30), the company's revenue surged 101% year over year to $13.51 billion, crushing Wall Street's consensus estimate of 67% growth. Adjusted earnings per share (EPS) skyrocketed 429% to $2.70, trouncing the 147% growth analysts had expected. Growth was driven by the data-center platform, whose revenue rocketed 171% year over year to $10.32 billion. That huge increase was powered by soaring demand for the company's products that enable AI capabilities -- particularly generative AI. Generative AI is the tech behind OpenAI's incredibly popular chatbot, ChatGPT.
For fiscal Q3, management guided for revenue growth of 170% year over year. It also guided (albeit indirectly by providing several inputs) for adjusted EPS growth of 472%.
2. Meta Platforms: 169% return this year so far
Meta Platforms stock is having a great year largely because the company's business performance has considerably improved from 2022. Last year was a tough year for most tech companies -- and their stocks -- but Meta had a particularly challenging year. Moreover, some investors are likely more optimistic about the company's longer-term growth prospects in its core family of apps business (Facebook, Instagram, WhatsApp, and Messenger) than they've been in a while, thanks in part to Reels and Threads, which the company developed to compete with TikTok and X (formerly Twitter), respectively.
In Q2, Meta Platforms' revenue grew 11% year over year to $32 billion. Revenue growth was driven by a 34% increase in ad impressions across the company's family of apps, offset by a 16% decline in the average price per ad. Ad revenue accounted for more than 98% of total revenue, while revenue from "other" sources and the reality labs unit each accounted for less than 1% of total revenue. Reality labs is focused on the company's virtual reality (VR) technology and initiatives, including Meta's early entrant into the metaverse, Horizon Worlds.
As for the bottom line, EPS jumped 21% year over year to $2.98, which exceeded the $2.91 Wall Street had projected. Meta's business performance, while good, wasn't as good as that metric suggests. The company's operating income increased 12%, while net income increased 16%. This differential is due to the company's effective tax rate being lower in Q2 than it was in the year-ago period. Further, the reason that EPS grew 21%, rather than about 16% like net income, is that Meta bought back $793 million worth of its shares during the quarter. Benefiting from a lower effective tax rate and a stock buyback are not events that will occur in every quarter.
Bullish on Nvidia, neutral on Meta Platforms as long-term investments
In short, I'm bullish on Nvidia and neutral on Meta Platforms as long-term investments. My primary concerns about Meta are its plans to significantly increase its spending on metaverse initiatives beginning next year and -- to use the company's words in the Q2 earnings release -- its "increasing regulatory and legal headwinds in the [European Union] and U.S."