There's no denying it: The stock market is red-hot. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are up about 25%, 31%, and 13%, respectively, over the last 12 months. Many individual stocks are up even more.
But here's the thing: Touching red-hot items can leave you burned.
So, is now the time to load up on stocks or to play it cool? This week, a panel of Motley Fool contributors examined three of the hottest stocks on Wall Street: Amazon (AMZN +0.55%), CrowdStrike (CRWD +4.33%), and Nvidia (NVDA +1.73%).
Image source: Getty Images.
Amazon is up 45% over the past year. Here's why it could go higher.
Justin Pope (Amazon): Shares of the cloud and e-commerce giant Amazon have surged 45% over the past 12 months, outpacing the S&P 500 by a comfortable margin. But at a time when many stocks have outrun their fundamentals and could face setbacks, Amazon might be ready to take it up a notch.
NASDAQ: AMZN
Key Data Points
Amazon's culture is arguably my favorite part of the company. It relentlessly invests profits back into the company to grow, always looking for its next big thing.
The pandemic juiced demand for e-commerce and digital services, impacting Amazon's core retail and cloud businesses. The company stepped up to the plate and significantly invested in growing its supply chain capacity and cloud capabilities. You can see that Amazon has spent tens of billions of dollars on capital expenditures over the past several years:
AMZN Capital Expenditures (TTM) data by YCharts
Now, Amazon is starting to see a return on all that invested capital. Its cash flow from operating the business is at all-time highs, and earnings are poised for a stretch of high-speed growth. Analysts believe the company could grow earnings by an average of 30% annually for three to five years -- meanwhile, shares trade at "just" 39 times earnings today. In hindsight, that valuation will look like a bargain if Amazon's earnings growth meets expectations.
Over the years, Amazon has shown it will continue swinging for the fences by investing in itself. Not every Amazon project will be a home run, but long-term investors can comfortably put their money behind a management team like that. Fortunately, you may not need to wait long for the stock to create wealth for shareholders, even if you're relatively new to the stock. The stock's 45% run is remarkable, but the reality is that there could be more to come.
CrowdStrike's run is a cause for celebration and concern
Will Healy (CrowdStrike): Perhaps no cybersecurity stock has benefited more from the artificial intelligence (AI) boom than CrowdStrike. The endpoint security specialist has risen 151% over the last year as it capitalized on the threats and functionality brought by the emerging technology. Amid this increase, the company will become the newest member of the S&P 500 on June 24.
NASDAQ: CRWD
Key Data Points
CrowdStrike's Falcon platform has long served as a leader in endpoint security, a segment focused on protecting laptops, smartphones, servers, and other devices.
Moreover, the company offers what it says is the most complete AI-native defense, using the highest-fidelity security data to train its AI models. As such, the more its models train, the better they become at defending customer networks.
CrowdStrike has also maintained growth in an environment where customers increasingly deal with just one cybersecurity vendor. Its management said on the fiscal Q1 2025 (ended April 30) earnings call that 65% of its customers have purchased five or more of its modules. Also, deals involving eight or more modules rose 95% in the quarter, a factor that could indicate its market share is rising.
The question for prospective buyers is whether they waited too long to buy the stock. Revenue in fiscal Q1 grew 33% yearly to $921 million, slower than the 36% increase in fiscal 2024. Also, if fiscal 2025 revenue comes in at the midpoint of the forecast $3.97 billion to $4.01 billion, it will slow to 30%.
That slowdown in revenue growth may prompt investors to question its elevated sales multiple. CrowdStrike's price-to-sales (P/S) ratio is now 29, well above the average P/S ratio of 20 over the last year and approximately 10 times the average 2.9 sales multiple for the S&P 500. Such valuations increase the danger of a pullback in the stock.
Admittedly, a high P/S ratio does not undermine its longer-term bull thesis. Nonetheless, investors should probably hold out for a lower sales multiple before putting more money to work in CrowdStrike.
Nvidia has climbed the mountain and is now the world's most valuable company
Jake Lerch (Nvidia): Up 226% over the last 12 months, Nvidia's recent rise will go down in history. The company recently surpassed Microsoft to become the world's most valuable company, with a market cap topping $3.4 trillion.
NASDAQ: NVDA
Key Data Points
Yet, for many investors, the question has to be whether Nvidia's rally can go on. Can a stock that has already risen more than 10x in less than two years really be a smart long-term investment?
To answer this question, you have to dig into the numbers -- and they're eye-popping.
Let's start with Nvidia's revenue. The company's trailing-12-month sales more than tripled from a low of $26 billion to almost $80 billion. What's more, revenue estimates continue to skyrocket. For Nvidia's current fiscal year (which ends on Jan. 28, 2025), analysts predict $120 billion; sales estimates rise to $160 billion the following year. In short, Wall Street expects the company's 2026 sales total to be roughly 6x its 2022 total.
So, despite the company's impressive revenue and lofty estimates of its future revenue, Nvidia's stock is still running ahead of the numbers. This is easy to see if you look at the stock's forward price-to-sales (P/S) ratio, which is nearing its all-time high of 46x.
NVDA PS Ratio data by YCharts
Yet, while the stock's high valuation is notable, it doesn't mean that Nvidia isn't a great long-term investment. Remember, the reason the company's sales are soaring is because Nvidia's products are the most sought after hardware globally. They are helping shape the cutting-edge technology that is powering the AI revolution.
If you believe AI is the technology that will dominate the next 10 to 20 years, investing in Nvidia today -- even with its high valuation -- still makes sense.
