Tech giant Nvidia (NVDA 3.62%) and social media behemoth Meta Platforms (META 1.94%) took the gold and silver medals, respectively, for the best-performing stocks on the S&P 500 index for the first half of 2023.
Below is a look at the top two performers of the year through June 30. For context, the S&P 500 returned 16.9% over this period, while the tech-heavy Nasdaq Composite returned 32.3%.
1. Nvidia: 190% return in the first half of 2023
Nvidia started out in the 1990s as a company focused on making graphics processing units (GPUs) for computer gaming. Today, it dominates this market and has become a technology powerhouse that’s a leader in many fast-growing tech arenas, including artificial intelligence (AI), self-driving vehicles, and the burgeoning metaverse.
In its first quarter of fiscal 2024 (which ended in late April), Nvidia’s revenue declined 13% year over year to $7.19 billion, though this was a better result than Wall Street had expected. Like many companies, Nvidia’s business has been hurt by the macroeconomic environment, as both businesses and consumers became more cautious with their spending last year.
The good news for investors is that in fiscal Q2, Nvidia is poised to resume its year-over-year growth, but its growth should also be powerful. Management guided for fiscal second-quarter revenue of $11 billion, or growth of 64% year over year. It also expects adjusted earnings per share (EPS) to soar 286% to $1.97.
A big reason for this ramped-up growth expectation is what CEO Jensen Huang has called the “surging demand” for the company’s data center platform products that enable generative AI capabilities.
Wall Street, on average, is modeling for Nvidia’s adjusted EPS to increase 132% year over year for the current fiscal year and then average 21.2% growth over the next five years. That’s very solid growth. But it seems a great bet that Nvidia’s profits will grow significantly faster than analysts are expecting. For many years, Wall Street has substantially underestimated this company’s growth potential — and there’s no reason to believe this dynamic will change.
2. Meta Platforms: 138% return in the first half of 2023
Social media leader Meta Platforms’ family of apps includes Facebook, Instagram, WhatsApp, and Messenger. The company generates the vast majority of its revenue from selling digital advertising on these sites. It also generates a small percentage of its total revenue from other sources, including sales of Oculus Quest virtual reality (VR) headsets.
In the first quarter of 2023, Meta Platforms’ revenue edged up 3% year over year to $28.6 billion. Revenue growth was driven by a 26% increase in ad impressions across the company’s family of apps, offset by a 17% decline in the average price per ad. EPS, however, dropped 19% year over year to $2.20. The main culprit for the contracting profit margin was a 10% increase in cost and expenses, including restructuring charges.
Meta Platforms has been struggling to grow Facebook’s daily and active users, which is due, in part, to the site being quite mature. Moreover, many younger consumers have been drawn to TikTok, a short-form video-sharing site. In the first quarter, Facebook’s monthly active user (MAU) count ticked up 2% year over year. Thanks to the strength of its other apps, its combined family of apps performed better, with a 5% increase in MAUs.
Wall Street is modeling for Meta Platforms’ adjusted EPS to grow 36% year over year in 2023 and then average 18.5% growth over the next five years. I am neutral on Meta Platforms stock as a long-term investment. On the positive side, the company is still the leader, by far, in the huge social media space, and that isn’t likely to change anytime soon. And it also typically generates generous cash flows.
On the flip side, there are reasons for caution:
- Facebook is very mature, which makes user growth increasingly difficult.
- The company seems likely to continue having occasional regulatory issues, some of whose fines could be sizable.
- Nearly all its eggs are in one basket — digital advertising.
In short, I believe Nvidia stock is poised to remain a long-term winner, while Meta Platforms stock’s long-term growth potential is cloudy.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.