The natural reaction when seeing a stock rise is to believe that it's either too expensive, or it has no more room to run. While this may be true for stocks whose share prices are pushed higher due to sentiment, it is unfair to apply this blanket statement to all stocks that have surged.
Growth stocks with robust business models that are enjoying long-term tailwinds can continue to report better financial results. As they increase market share, profit, and cash flow, their share prices should naturally head higher.
If you are searching for stocks with more room to run, you should focus on companies with solid competitive moats and a great track record of performance.
At the same time, these businesses should possess catalysts that can take their them to the next level. Armed with these tailwinds, these companies may be just beginning to see a sustained share price rise, giving investors ample opportunities to hop on for the ride.
Here are three stocks that have witnessed a sharp share price surge but could have further to run.
Image source: Getty Images.
1. Netflix
It has been a roller-coaster ride for Netflix (NFLX -0.63%) investors. Slightly more than a year ago, the streaming giant reported two consecutive quarters of quarter-over-quarter membership declines, sparking a panic among investors that the company was losing its luster.
Fast-forward to today, and Netflix has reported a sparkling set of earnings for the third quarter of 2023, putting to rest concerns that growth is slowing.
Paid streaming members hit a new all-time high of 247 million, up nearly 11% year over year, with the highest paid additions of 8.8 million in the last eight quarters. Revenue for the quarter rose 7.8% year over year to $8.5 billion with net income jumping 20% year over year to $1.7 billion.
Management also expects to generate a free cash flow of around $6.5 billion, higher than its prior forecast of approximately $5 billion. Shares surged by 16% post-earnings, bringing the streaming company's year-to-date gain to around 36%.
The business could enjoy further positive momentum as it touts the best engagement among its competitors with its slate of high-quality movies and TV shows.
Nielsen's report on the share of U.S. TV screen time showed Netflix at 7.8%, way above its close competitors Amazon at 3.6% and Disney at 1.9%. The company intends to broaden its licensing deals to bring in a greater variety of content while introducing more sports shoulder programming to cater to sports fans.
Netflix also has an ambitious plan to develop "Netflix House" by 2025, physical retail locations where fans can eat, play, and shop. Initial locations will be in the U.S. with global expansion to follow.
Netflix's paid sharing clampdown has also turned out well, helping to convert more households into full-paying members with healthy retention rates.
Price hikes are also in the cards with basic and premium plans now costing $11.99 and $22.99, respectively, up from $9.99 and $19.99 previously. Yet another catalyst is the company's ad-supported tier, which has done well, with ads membership increasing nearly 70% quarter over quarter and accounting for slightly less than a third of all new sign-ups in 12 countries.
With Netflix's strong content slate and keen focus on delivering content in a wide variety of languages and genres, investors can expect the streaming giant to pull ahead of the competition to report even better subscriber and financial numbers in the quarters ahead.
2. Nvidia
Nvidia (NASDAQ: NVDA) is a leading graphics processing unit (GPU) manufacturer that revolutionized the personal computing and gaming industries.
The company's shares have soared nearly 190% year to date on the back of a year-over-year doubling of revenue to $13.5 billion for its latest quarter. This record-high revenue was achieved as companies worldwide digitalized and transitioned to accelerated computing and generative artificial intelligence (AI).
Net income for the quarter leapt ninefold year over year to $6.2 billion with free cash flow climbing nearly fourfold year over year to $8.7 billion in the first six months of the fiscal year.
Investors can expect more from the GPU manufacturer. Its third-quarter forecast pegged revenue to come in at $16 billion, more than double the $5.9 billion it reported in the prior year's quarter.
CEO Jensen Huang also remarked that a new computing era had begun with the inclusion of AI into almost all information technology products and services. Meanwhile, Nvidia expanded its Jetson robotics platform to enable more than 10,000 companies to use generative AI and application programming interfaces (APIs) to accelerate their digitalization.
The company also created an AI lab for its 1.2 million developers to use alongside the latest open-source generative AI models.
Elsewhere, Nvidia is working with Advanced Micro Devices on a new line of workstations equipped with Nvidia's GPUs and the latter's central processing units. This combination provides both the power and performance for computers to handle AI development tasks without requiring the intensive resources provided by data centers and cloud resources.
It is an exciting time ahead as AI continues to grow in usage and capabilities, giving Nvidia plenty of opportunities to grow both its top and bottom lines.
3. Meta Platforms
Meta Platforms (META 0.43%) may have enjoyed a more than doubling of its share price year to date, but investors could be in for further gains as the social media giant continues to explore and incorporate AI into its products.
The company's most recent quarter saw revenue rise 11% year over year to $32 billion while net income climbed 16% year over year to $7.8 billion.
The business also continued to generate copious amounts of free cash flow with the first six months of 2023 seeing $18.3 billion of free cash flow churned out against $13.3 billion in the same period last year.
Despite Meta's dominant market position in the social media space, it continued to see increases in Facebook's daily active user (DAU) and monthly active user (MAU) bases, with DAU and MAU rising by 4.9% and 3.3% year over year, respectively, to 2.1 billion and 3 billion.
Investors can expect more from Meta Platforms with the launch of AI chatbots for its Instagram, WhatsApp, and Facebook products. The new feature allows developers to create their own versions of AI assistants and is Meta's latest attempt to engage its user base on various platforms.
The new AI assistant can search for answers to questions and generate images, all in partnership with Microsoft's Bing search engine.
The new chatbot will be launched in the U.S. in beta mode but management has plans for chatbots covering a range of interests such as fashion and gaming. To make things even more interesting, Meta will release a line of digital personalities built on this new AI chatbot platform, with characters that include Snoop Dogg and Kendall Jenner.
Elsewhere, the social media behemoth also unveiled its Quest 3 headset, which combines both augmented and virtual reality to compete against Apple's Vision Pro.
Meta's latest attempt at incorporating AI elements into its products should generate buzz and draw in even more users, allowing it to steadily grow both its DAUs and MAUs over the medium term.
