Better Growth Stock: Nvidia vs. Apple
Tech stocks fell out of favor in 2022, which led the Nasdaq-100 Technology Sector index to plummet 40% throughout the year. Steep rises in the cost of living led to declines in demand for consumer technology and reductions in earnings for many companies. However, 2023 has Wall Street optimistic about the market again, with the index up roughly 19% year to date.
As a result of this optimism (and other positive catalysts unique to each specific company), Nvidia (NVDA 0.72%) and Apple (AAPL -0.55%) shares have risen 75% and 20% since Jan. 1. These companies experienced substantial stock declines last year yet remain compelling long-term investments, thanks to their history of immense growth.
So, is Nvidia or Apple the better growth stock? Let’s take a closer look.
Nvidia’s AI catalyst supports longer-term growth
After suffering a stock price fall of 50% last year, Nvidia’s monster growth since the start of 2023 has investors’ heads spinning. The swift recovery has highlighted the importance of holding growth stocks through temporary market sell-offs, as those who sold last year would not have benefited from the recent rally.
Nvidia shares have climbed 307% in the last five years and roughly 8,000% over the last 10 years, solidifying it as one of the best growth stocks available. The company has primarily profited from the expansion of the consumer graphics processing unit (GPU) market over the years, which has seen more and more people build custom PCs for activities such as video editing and gaming.
Nvidia has amassed an 88% market share in desktop GPUs. The majority market share was the company’s detriment in 2022, with GPU shipments sinking 42% worldwide. However, its dominance in the industry has also given it the power and financial resources to become a prominent player in artificial intelligence (AI), a market that also heavily utilizes GPUs.
Nvidia is the primary supplier of GPUs to OpenAI’s ChatGPT, an advanced AI chatbot capable of producing human-like dialogue. According to research from TrendForce, the software used about 20,000 GPUs in 2020, with that figure expected to hit 30,000 soon as ChatGPT prepares for commercialization.
As AI competition ramps up, more companies could soon turn to Nvidia for its GPUs, making its stock a no-brainer buy right now, especially alongside a history of consistent growth.
Expect Apple’s dominance to continue
With the highest market cap in the world at $2.45 trillion, Apple’s stock has long had a reputation as a reliable and solid growth stock. The company’s shares have risen 250% in the last five years and 884% in the last decade. Meanwhile, its annual revenue has increased by 48% to $394.33 billion since 2018, with operating income soaring 68% to $119.44 billion.
Apple truly proved its resilience in 2022 by being one of the only companies among big tech to outperform the market, illustrated in the chart below.
Apple’s immensely popular products and services remained in demand in fiscal 2022, with revenue rising 8% year over year to $394.3 billion and operating income climbing 9.6% to $119.4 billion. The company’s stability is mainly thanks to the wide adoption of its iPhones and services, which combined were responsible for 72% of Apple’s revenue last year.
In September 2022, the iPhone overtook Alphabet‘s Android for most smartphone market share, hitting 50%. The majority market share will likely prove a lucrative asset for Apple to attract more consumers to its other products and services in the future. Meanwhile, Apple’s services segment reported revenue growth double the iPhone in 2022 at 14%, earning $78.1 billion with a profit margin of 71.7%. Comparatively, products’ profit margin came in at 36.3%. As a result, Apple’s diversification with solid positions in hardware and digital services strengthens its long-term outlook.
Apple stock is the winner
Apple’s year-to-date stock rise of 20% may not be as impressive as Nvidia’s 75%. However, the more gradual rise suggests the iPhone company’s stock is less volatile. Additionally, Apple’s performance amid economic challenges in 2022 makes its stock feel less of a risk, no matter the climate of the market.
Nvidia and Apple are both great long-term investments, likely to offer substantial gains for years thanks to their solid roles in high-profit markets. But if you can only choose one, Apple is the better and more reliable growth stock right now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, and Nvidia. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.