Two of the most exciting stocks so far in 2024 are Chipotle Mexican Grill (NYSE: CMG) And Nvidia (Nasdaq: NVDA). In fact, both companies are leaders in their industries.
However, in addition to strong business performance, these two companies have something else in common that leads to increased buying activity. Specifically, Nvidia and Chipotle both have upcoming stock splits scheduled for June.
As shares of each continue to rise, investors may be hard-pressed to see which company represents a more compelling long-term position.
Let's analyze the benefits and opportunity costs of owning each stock, and evaluate which stock seems like the better choice.
The case for and against Nvidia
The chart below shows Nvidia's revenue, gross profit, and net income over the past 10 years. It is clear that the past two years have witnessed significant growth compared to previous periods.
It's no secret that Nvidia is a major player in… artificial intelligence World (artificial intelligence). The company's H100, A100 and Blackwell GPUs are in high demand with customers including Tesla And Meta platforms.
What's really notable about the above trends is that Nvidia's growth is accelerating across both the top and bottom lines. By generating excess cash flow, Nvidia can reinvest profits into other growth engines and strengthen its long-term roadmap.
Although all of this is positive, there are some risks that should be acknowledged. Currently, it is estimated that Nvidia has 80% of the AI chip market.
However, competition is high Intel Corporation, Advanced micro devicesEven big technology companies like Amazon Existing clients like Meta pose a threat. Both of these companies are Developing its own chip linewhich should eventually encroach on Nvidia's leadership.
The case for and against Chipotle
Chipotle is known for its delicious wraps and burrito bowls. With 40 million members in its rewards program, Chipotle has undoubtedly built a loyal customer following with a strong brand.
One of the ways Chipotle has been able to capture the attention of many consumers is due to the company's investments in digital sales strategies.
Similar to Nvidia, Chipotle has been able to finance a very profitable operation. Its digital sales channels helped drive significant margin expansion, which in turn flowed through to the bottom line. Although these financial results are encouraging, Chipotle stock carries some 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 a restaurant chain like Chipotle is more vulnerable.
Consumer discretionary trends are very sensitive and can fluctuate from year to year. I would encourage investors to think about this dynamic as it relates to long-term growth prospects.
And the winner is?
The final part of this analysis is about evaluation. As shown in the chart below, Chipotle and Nvidia's price-to-earnings (P/E) ratio shows vastly different trends.
Over the past year, Chipotle's P/E has risen significantly — it now stands at 65.7. By contrast, Nvidia's P/E ratio is much lower than it was a year ago.
Another way to look at this is to understand that although each stock has risen sharply in the past year, Nvidia shares are technically cheaper than they were 12 months ago. Why? Because the company's profit growth exceeds the acceleration of the stock price.
Ultimately, Chipotle and Nvidia are two very different companies.
The fact of the matter is that fast casual dining at Chipotle is a luxury purchase. While the above operating results suggest the company can grow, it's important to remember that Chipotle sells burritos — it's not a wholly owned company.
Conversely, Nvidia sells a product that businesses of all sizes need. Although there is competition, I believe there are stronger secular winds in the long term fueling AI than the food industry. If anything happens, Chipotle could become an Nvidia client as the company doubles its investment in the technology.
In other words, AI is so prolific that its applications cover a variety of industry sectors, including food and beverage. However, I don't think the opposite is true. I don't see many reasons why Nvidia would become a Chipotle customer.
Given the growth story surrounding AI, coupled with Nvidia's attractive valuation, I think the company is a better choice compared to Chipotle.
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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 director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Spatacco He has positions at Amazon, Meta Platforms, Nvidia, and Tesla. The Motley Fool has positions in 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 Disclosure policy.
Nvidia vs. Chipotle: What's the best stock to buy now and hold for the next 10 years? Originally published by The Motley Fool