SHOP:CC - Forget NVIDIA: 1 Tech Stock to Buy Instead
2024-05-23 16:10:00 ET
NVIDIA just announced some eye-popping numbers for the first quarter of its fiscal year 2025 (ended in April), posting a jaw-dropping US$26 billion in revenue. That’s up a massive 262.1% on a year-over-year basis! In addition, the company declared a ten-for-one stock split effective June 7 and increased its quarterly cash dividend by 150%.
But before you rush to buy more NVIDIA shares, it’s worth taking a step back. The company’s impressive growth comes with a hefty price tag, including heightened competition in the AI (artificial intelligence) segment, a stock valuation that might be inflated, and the massive costs linked with staying at the cutting edge of technology.
That’s why, rather than focusing solely on NVIDIA, it might be wise to diversify your investment portfolio by adding other tech stocks to it. One such promising tech stock is Shopify ( TSX: SHOP ). Despite a challenging year, with its stock down 22% year to date, Shopify stock might offer a significant opportunity for investors looking to benefit from the continued long-term growth of e-commerce.
Now, let me quickly give you some reasons why Shopify could be a great tech stock to buy on the dip now.
Top reasons to buy Shopify stock today
One of the top reasons to buy SHOP stock today is its strong position in the e-commerce industry, which has been growing rapidly in the post-pandemic era and is expected to continue expanding in the long run. According to a Bloomberg Intelligence report, e-commerce is expected to account for 33% of all U.S. retail sales by 2027, growing at a compound annual growth rate (CAGR) of 10%. The report highlighted how the adoption of generative AI technology and new sales channels such as social, voice, and video commerce are also contributing to this growth, further building on the e-commerce boost seen during the COVID-19 lockdowns.
Unlike NVIDIA, which looks heavily dependent on a few key sectors like data centers and automotive sectors, Shopify benefits from the broad-based growth of the global e-commerce industry. The Canadian e-commerce platform giant has a diverse revenue stream, including subscription fees, transaction fees, and other merchant services, which minimize its risks of relying on a single revenue source.
Interestingly, Goldman Sachs also recently upgraded its rating on Shopify stock from “neutral” to “buy,” highlighting the Canadian e-commerce giant’s “significant technology moat.” This endorsement from a major financial institution adds further confidence in Shopify stock’s growth potential.
Also, the fact that Shopify has seen remarkable financial growth in recent years is another reason to consider buying Shopify stock today. To give you a little idea about that, Shopify’s total revenue jumped 558% in the five years (ended in December 2023). Similarly, its adjusted annual earnings in these five years climbed 1821% from just US$0.04 per share in 2018 to US$0.73 per share in 2023. By comparison, NVIDIA posted a revenue growth of 420% in the last five fiscal years (ended in January 2024), while its adjusted annual earnings grew positively by 681%.
While AI-driven growth has propelled NVIDIA to new heights, SHOP stock has seen more than 45% value erosion over the last three years despite its solid financial growth trends. In my opinion, the recent massive declines in Shopify’s stock make it look way too undervalued to buy on the dip, especially based on its long-term fundamental outlook.
The post Forget NVIDIA: 1 Tech Stock to Buy Instead appeared first on The Motley Fool Canada .
The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Goldman Sachs Group and Nvidia. The Motley Fool has a disclosure policy . Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.
2024