Two of the hottest names in tech right now are Sandisk (SNDK 2.70%) and Nvidia (NVDA +4.39%). While Sandisk only began trading on its own a little over a year ago, it's been on a tear ever since. Meanwhile, Nvidia has been a hot buy since artificial intelligence (AI) became a huge buzzword on the markets, and today it's the most valuable company in the world, with a valuation eclipsing $5 trillion.
There are compelling reasons to buy these stocks today. With Sandisk, it's smaller in size and is benefiting from the surge in demand for memory and storage products. Nvidia, meanwhile, has incredibly strong financials and is at the center of the AI revolution. Which stock are you better off buying right now?
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Sandisk's recent growth has been more impressive, but will that trend last?
When Sandisk last reported earnings on April 30, its growth rate was astounding, with revenue of just under $6 billion (for the period ending April 3) rising 97% sequentially and up a staggering 251% year over year. With product prices soaring due to shortages, it has been able to capitalize on recent market trends. The question becomes what happens later, however, when it starts to lap these incredible results. The risk is that the growth rate could quickly come down and not look nearly as exciting.
Nvidia, on the other hand, has already gone up against its stronger earlier growth numbers, and the results have remained fairly impressive. When it reported earnings in February, its growth rate for the three-month period ending Jan. 25 was 73%, with revenue coming in at more than $68 billion. A year earlier, its growth rate was 78%. While there's been a slowdown, it hasn't been a significant one for Nvidia. Whether that remains the same for Sandisk is the big question.
NASDAQ: NVDA
Key Data Points
The premiums they trade at are comparable, but should that really be the case?
What kind of premium you're paying for a stock is crucial, because regardless of how strong its business may be, if you pay too much, you still may generate a poor return from the investment. And it's not merely about looking at price. Instead, the price-to-earnings (P/E) multiple is key. Specifically, I prefer the forward P/E as that factors in the company's earnings for the year ahead (based on analyst projections).
Based on this metric, the stocks look fairly similar. Sandisk trades at a forward P/E of 24, while Nvidia's forward earnings multiple is just under 27. There's a bit of a difference, but it's by no means massive. The real question is whether the stocks should trade at similar premiums or whether a company as deeply ingrained in AI as Nvidia should trade at a multiple similar to that of a company such as Sandisk, which is benefiting from a shortage of memory products in the market. I'd be compelled to say no.
NASDAQ: SNDK
Key Data Points
Both stocks contain risks that investors should be aware of
It's also important to consider the risks with these stocks to ensure you're comfortable with any potential uncertainty ahead. The big one for Sandisk is that as the supply of memory and storage products rises, prices might end up falling. If that happens, its growth rate may fall drastically and, in a worst-case scenario, even turn negative. The big unknown is how long it may take for such a scenario to play out.
In Nvidia's case, the biggest risk is that tech companies scale back AI spending, driven by economic concerns or pressure from Wall Street. That could sharply reduce its growth prospects and the premium investors are willing to pay for the stock. However, if that happens, it would likely bring tech stocks down as a whole, including Sandisk.
NASDAQ: NVDA
Key Data Points
Sandisk may have more near-term upside, but Nvidia is the safer all-around buy
Sandisk is the shiniest, most exciting new stock, and investors have been loading up on it. In the past 12 months, it has risen by a staggering 3,400%. Nvidia's gains are impressive at around 80%, but come nowhere near Sandisk's returns. And with Sandisk's market cap being around $220 billion, investors may still see more upside for the stock.
I wouldn't be surprised to see Sandisk's stock continue to rally due to the excitement around memory, but Nvidia is the better, more well-rounded investment overall.
