Artificial intelligence and pent up travel demand have been powerful catalysts for the post-pandemic stock market. Consider the three best-performing stocks in the S&P 500(SNPINDEX: ^GSPC) during the last two years, as listed below:
- Nvidia(NASDAQ: NVDA) shares advanced 775%.
- Super Micro Computer(NASDAQ: SMCI) shares advanced 591%.
- Royal Caribbean Cruises(NYSE: RCL) shares advanced 302%.
Importantly, Wall Street expects more gains from all three growth stocks. Nvidia's median target of $150 per share implies 26% upside from its current share price of $119. Super Micro's median target of $675 per share implies 54% upside from its current share price of $437. And Royal Caribbean's median target of $184 per share implies 12% upside from its current share price of $164.
Investors should never rely too heavily on price targets, but these three monster growth stocks warrant further consideration. Here are the important details.
Nvidia: 2-year return of 775%
Nvidia graphics processing units (GPUs) are the industry standard in data center accelerators, meaning they speed up tasks like training machine learning models and running artificial intelligence (AI) applications. GPUs perform technical calculations faster and more efficiently than central processing units (CPUs), and Nvidia regularly set records at the MLPerfs, objective tests that measure AI training and inference capabilities.
The company holds up to 95% market share in AI chips, according to analysts. But Nvidia is truly formidable because it has spent decades developing its CUDA platform, a software ecosystem that streamlines data preparation and application development across a broad range of disciplines. The company has also extended its ability to monetize AI by branching into cloud services and adjacent hardware markets, including data center networking and server CPUs.
Over the last two years, Nvidia's revenue increased 240% and GAAP earning soared 599%. The company is well positioned to maintain that momentum. Grand View Research expects the graphics processor market to grow at 27% annually through 2030 due to strong demand for AI accelerators.
Nvidia shares declined following its second-quarter report, despite strong results, but most analysts remain bullish. Angelo Zino at CFRA believes Nvidia "will be the most important company to our civilization over the next decade as the world becomes more AI-driven." More broadly, Wall Street expects the chipmaker's earnings to increase at 36% annually over the next three years. That estimate makes the current valuation of 56 times earnings seem reasonable.
Super Micro Computer: 2-year return of 591%
Super Micro Computer develops high-performance compute platforms for enterprise and cloud data centers. Its portfolio ranges from individual servers and storage systems to full server racks optimized for workloads like artificial intelligence. In fact, Super Micro is the leading supplier of AI servers, and its market share is expected to reach 17% in 2026, up from 10% in 2023, according to Bank of America analysts.
What sets Super Micro apart are internal engineering capabilities and its modular approach to development, both of which support rapid product rollout. CEO Charles Liang says the plug-and-play nature of its servers lets the company quickly build a broad range of products featuring the latest chips from suppliers like Nvidia. In turn, Super Micro tends to beat competitors to market by two to six months.
In the last two years, Super Micro's revenue increased 188% and GAAP earnings jumped 277%. The company is well positioned to maintain that momentum because analysts at JPMorgan expect AI server sales to increase sixfold between 2023 and 2028. Additionally, Super Micro is a leader in direct liquid cooling (DLC) solutions, which lower data center costs by controlling server temperatures more efficiently than traditional air cooling. Demand for DLC should increase in lockstep with demand for AI servers because they throw off a lot of heat.
Super Micro shares recently nosedived when short-seller Hindenburg Research discovered "accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues." But most analysts remain bullish. Wall Street expects Super Micro's earnings to increase at 49% annually over the next three years. That consensus estimate makes the current valuation of 22 times earning look pretty cheap.
Royal Caribbean: 2-year return of 302%
Royal Caribbean is the second-largest cruise company in the world. Its fleet of 68 ships spans five brands that travel to about 1,000 different destinations. That scale affords the company a durable economic moat in the capital-intensive cruise industry. Additionally, Jaime Katz at Morningstar recently wrote, "Royal Caribbean has carved out a compelling position in cruising thanks to its contemporary brand and compelling destinations."
In November 2022, Royal Caribbean outlined the Trifecta Program, a three-year financial initiative meant to return the company to pre-pandemic strength: (1) Adjusted EBITDA per available passenger cruise days of at least $100, (2) adjusted earnings per share of at least $10, and (3) return on invested capital of at least 13%. Those targets were chosen because they exceeded pre-pandemic records.
Royal Caribbean satisfied all three criteria in the most recent quarter, putting it 18 months ahead of schedule. That means the company is (1) monetizing customers more efficiently, (2) operating more profitably, and (3) allocating capital more effectively. Royal Caribbean also reinstated its dividend, another sign of improving financial strength. The quarterly payout is currently $0.40 per share, which gives a dividend yield of roughly 1%.
Wall Street expects Royal Caribbean's adjusted earnings per share to grow of 19% annually through 2026. That estimate makes the current valuation of 16.3 times adjusted earnings look reasonable, but not cheap. I say that because shares traded around 14 times adjusted earnings in the years leading up to the pandemic. The current price is a fine entry point, but I wouldn't fault investors that wait for a slightly cheaper valuation.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
