The top two stocks to date in 2024 are Chipotle Mexican Grill (NYSE: CMG) and Nvidia (NASDAQ: NVDA). Indeed, both businesses are considered leaders in their respective industries.
However, in addition to solid business performance, the two companies share other things in common that lead to some higher buying activity. Specifically, Nvidia and Chipotle have upcoming stock splits scheduled for June.
With shares from each continue to soar, investors can be hard-pressed as a company that represents a more compelling position in the long term.
Let’s break down the benefits and opportunity costs of owning each stock, and assess which looks like a superior option.
The case for and against Nvidia
Nvidia Corporation’s history chart shows all quotes over the past 10 years. Clearly, the past few years have witnessed greater growth compared to previous periods.
It’s no secret that Nvidia is a major player in the world of artificial intelligence (AI). The company’s H100, A100, and Blackwell graphics processing units (GPUs) are in high demand with customers including Tesla and Meta platform.
What’s most important about the above trend is that Nvidia’s growth is accelerating on both the top and bottom lines. By generating excess cash flow, Nvidia can reinvest profits into other growth drivers and strengthen its long-term roadmap.
Although this is all positive, there are some risks that must be acknowledged. Currently, Nvidia is estimated to have 80% of the AI ​​chip market share.
However, rising competition from Intel, Advanced Micro Devicesand even large technology companies such as Amazon and existing customers like Meta pose a threat. Each of these companies is developing its own line of chips, which should eventually attack the commanding leader Nvidia.
The case for and against Chipotle
Chipotle is famous for its delicious burrito wraps and bowls. With 40 million rewards members, Chipotle is sure to create loyal customers with strong brand equity.
One of the ways Chipotle has been able to capture the attention of many consumers is because of the company’s investment in its digital sales strategy.
Like Nvidia, Chipotle has been able to finance its highly profitable operations. Digital sales channels have helped in meaningful margin expansion, which in turn flows to the bottom line. Although these financial results are encouraging, Chipotle stock carries risks.
Macroeconomic factors such as inflation and interest rates can affect any business. While Nvidia is certainly not immune to these factors, I would argue that restaurant chains such as Chipotle are more vulnerable.
Consumer discretionary trends are very sensitive and can fluctuate from year to year. I would encourage investors to think about these dynamics as they relate to long-term growth prospects.
And who won?
The last part of this analysis revolves around value. As seen in the chart below, the price-to-earnings (P/E) ratios of Chipotle and Nvidia reflect very different trends.
Over the past year, Chipotle’s P/E has grown significantly – it currently stands at 65.7. In contrast, Nvidia’s P/E is lower than a year ago.
Another way to look at this is to note that, while every stock has risen sharply over the past year, Nvidia stock is technically lower than it was 12 months ago. Why? Because the company’s earnings growth outpaces the acceleration of the stock price.
At the end of the day, Chipotle and Nvidia are two very different businesses.
The truth is that Chipotle casual dining is a luxury purchase. While the above operating results show that the company can grow, it is important to remember that Chipotle sells burritos – it is not an exclusive business.
Instead, Nvidia sells products that businesses of all sizes need. And while the competition is there, I think there are stronger long-term secular tailwinds fueling AI than the food industry. If anything, Chipotle could become an Nvidia customer as the company doubles down on its technology investments.
Said differently, AI is so productive that its applications span a wide range of industrial sectors, including food and beverages. I don’t think the opposite is true, though. I don’t see many reasons why Nvidia would be a Chipotle customer.
Considering the growth narrative around AI, coupled with Nvidia’s attractive valuation, I think the company is a better option compared to Chipotle.
Should you invest $1,000 in Nvidia right now?
Before buying shares in Nvidia, consider this:
At Motley Fool Stock Advisor The team of analysts only recognized what they believed it to be 10 best stocks to buy investors now… and Nvidia is not one of them. 10 stocks that made the cut could produce monster returns in the coming years.
Try when Nvidia created this list on April 15, 2005… if you invest $1,000 when you recommend, you have $671,728!*
Stock Advisor gives investors an easy-to-follow blueprint for success, including portfolio-building guidance, regular updates from analysts, and two new stock picks every month. At Stock Advisor service already more than four return of the S&P 500 since 2002*.
View 10 stocks »
* Stock Advisor returns on May 28, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former Facebook director of market development and spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Meta Platform, Nvidia, and Tesla. Motley Fool positions and recommends Advanced Micro Devices, Amazon, Chipotle Mexican Grill, Meta Platforms, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Nvidia vs. Chipotle: Which Could Be a Better Stock-Split to Buy Now and Hold for the Next 10 Years? this was originally published by The Motley Fool
