Will NVIDIA or Snowflake be the better investment for the upcoming five year period? 7investing advisors Simon Erickson and Luke Hallard compare the two stocks in a head-to-head matchup.
July 11, 2023
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We are on a quest to find the best current stock opportunity for investors. All month we are pairing popular stocks from both “growth” and “income” style investing up in matchups to determine which will provide the greater upcoming five-year return. We’ve included a voting poll at the bottom of this article: help us determine which of these stock represents the better opportunity for investors!
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In this “Growth Style, Round 1, Matchup 2” bracket, our #3-ranked GPU chipmaker NVIDIA (Nasdaq: NVDA) squares up against our #6-ranked data warehouse provider Snowflake (NYSE: SNOW).
Which of these two stocks will provide the better investment return over the next five years?
In our first Summer Stock Challenge matchup, $TTD bested $RKLB in our user poll.
Today's matchup: $NVDA – 5-Year Return: 588% $SNOW – 5-Year Return: (33%) (IPO 9/20)
Which company will have higher returns over the next 5 years?
— 7investing (@7investing) July 11, 2023
NVIDIA is a global chipmaker, whose Graphics Processing Units (GPUs) are extremely efficient at running the code of incredibly complex tasks in parallel. This makes them ideal accelerators for machine learning algorithms, which are computationally-heavy and require a boatload of horsepower.
NVIDIA has devoted its profit stream to the iterative improvement of its chip designs. Its Data Center segment — selling its GPUs to Microsoft Azure for the computing required for ChatGPT, for example — has become its most important growth driver and now accounts for 60% of total revenue. Elsewhere, NVIDIA is taking advantage of the opportunity to introduce GPUs into other markets, including autonomous vehicles, virtual reality, climate modeling, and medical diagnostic imaging. After working out all of the specifications of the chips’ design, it turns to Taiwan Semiconductor (NYSE: TSM) as the foundry for their manufacturing.
CEO Jensen Huang has become a celebrity of the semiconductor world. He was the first to bring GPUs to the gaming market, the first to introduce them to the data center, and the first chipmaking leader to host company keynotes wearing a leather jacket in his kitchen.
Investors should be wary that NVIDIA’s trillion-dollar market cap comes at a pricey premium. Selling at 40x sales and 220x earnings means NVIDIA carries one of the stock market’s most expensive valuations (at least when it comes to mega-caps). Techies are also quick to complain about NVIDIA’s chips being extremely power-hungry; which drives up electricity demand and operating expenses.
Yet it’s hard to believe NVIDIA’s best days are behind it. With large language models and machine learning inference on everyone’s minds and with incredible revenue guidance of $11 billion for the upcoming second quarter, the GPU King appears well-positioned for its astronomical run to continue even further.
Born in the cloud, Snowflake’s mission is to tear down data silos. Its cloud-native data warehouse enables businesses to bring together information from all across their organization into a format that is more accessible and valuable. This provides more meaningful context for decision-making managers to assess the holistic picture of what’s really going on. We’ve playfully referred to Snowflake’s modern data stack as the central nervous system of the enterprise.
The company’s usage-based model sells credits to customers upfront (kind of like loading up a Dave & Buster’s card), which they can use later on for storage, computing, or applications needs. Even with more than 7,000 customers already on board, revenue and customer count each continue to grow at a 30%+ clip per year. Snowflake’s number of customers spending at least $1 million annually is doubling in year-over-year comparisons, while its net revenue retention of 151% is industry-leading and shows that existing customers are spending more every year. This is also a very profitable company, clocking in an incredible 48% free cash flow margin during the most recent first quarter.
Several investors balk at Snowflake’s stock-based compensation plan, which generously rewarded CEO Frank Slootman with $10 million in stock awards and another $13 million in options last year. His newly-minted shares continually dilute shareholders, which has stung even further as the stock has fallen in price since its high-profile IPO in late 2020. Many considered it to be extremely overvalued when it hit the public markets, and it’s still hard to call it a bargain selling at 24x sales.
Yet despite the chilly name, Snowflake’s execution has been red hot. With $3.4 billion of contractual remaining performance obligations on the books, it has proven how crucial of a role it is playing in the enterprise world’s digital transformation.
Will NVIDIA or Snowflake be the better investment for the upcoming five year period? Cast your vote in our live poll below!
In our first Summer Stock Challenge matchup, $TTD bested $RKLB in our user poll.
Today's matchup: $NVDA – 5-Year Return: 588% $SNOW – 5-Year Return: (33%) (IPO 9/20)
Which company will have higher returns over the next 5 years?
— 7investing (@7investing) July 11, 2023
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