Investing a thousand dollars? Consider these two booming stocks to purchase straight away.
For many Americans, a $1,000 bonus would typically go towards settling some bills or organizing a pleasing getaway. However, investing this sum into the stock market could potentially pave the way for significant long-term growth. Let's examine the advantages and disadvantages of investing in Nvidia (NVDA -2.60%) and Luckin Coffee (LKNC.Y -1.37%), and decide if their stocks would be wise purchases.
Nvidia
Nvidia's shares have experienced a colossal 179% surge so far in 2024, making it one of the year's standout performers as it maintains its stronghold in the generative artificial intelligence (AI) sector. The company's financial health keeps growing, and it appears that its dominant position in the market will persist for some time.
The third-quarter earnings for fiscal 2025 marked another triumphant quarter for Nvidia, with revenue surging 94% to $35.1 billion, mainly due to the continuous demand for its high-performance graphics processing units (GPUs). Nvidia looks set to maintain its exceptional growth rate through upcoming product releases, such as Blackwell, a new line of GPUs designed to enhance speed and efficiency for AI tasks.
Though Nvidia has no problems selling its products to market titans like Alphabet and Meta Platforms, the AI sector remains unpredictable. It can be challenging to monetize consumer-focused AI, as demonstrated by industry leader OpenAI's projected $5 billion in annual losses for 2024. It remains unclear how long Silicon Valley can sustain such losses before scaling back AI investments.
Nevertheless, with a forward price-to-earnings (P/E) ratio of 32, Nvidia's shares appear moderately priced given its triple-digit growth rate. The company's valuation seems to account for potential challenges within the industry.
Luckin Coffee
Investors have been holding onto Luckin Coffee shares since 2021, but the stock has begun to stagnate, losing 18% in 2024. Overshadowing growth and a slowing Chinese economy have negatively impacted the coffee chain's valuation. However, expanding into new markets such as the U.S. might trigger a lasting recovery.
Revenue for the third quarter grew 41% year-over-year to $1.45 billion through organic growth and 1,382 new store openings (total of 21,343 stores). Although this is a commendable expansion rate for most companies, it constitutes a noticeable deceleration from the 85% growth rate reported in the comparable quarter of 2023. The deceleration could be attributed to economic weakness in China and stiff competition from rival Cotti Coffee, which is already imitating Luckin's drink selection and contactless service.
As it focuses on international expansion, Luckin could regain its growth momentum. According to the Financial Times, the company plans to enter the U.S. market as early as 2025, with a major push into metropolitan areas with large Chinese student populations, like New York. Luckin's vertically-integrated operations (it owns its own roasting facilities) could help it offer competitive pricing against established competitors like Starbucks.
At a forward price-to-earnings multiple of 14, Luckin Coffee shares are significantly undervalued, and the U.S. expansion provides an intriguing investment opportunity. The stock could still be trading at a premium due to its 2020 fraud scandal, offering investors a chance to bet on its resurgence.
Which stock is the wiser purchase?
Though Nvidia's shares have had an exceptional run in 2024, new investors may be arriving too late to the party if they consider buying the stock now. The demand for AI infrastructure remains robust, but consumer-focused AI adoption remains far from mainstream.
Over the coming years, I expect Luckin Coffee's stock to deliver better performance due to its attractive valuation and expansion into new markets like the U.S. and other major markets.
Given the text provided, here are two sentences that contain the words 'money', 'finance', and 'investing':
- If you have extra money to invest in the stock market, you might consider investing in Luckin Coffee, as its shares are significantly undervalued with a forward price-to-earnings multiple of 14.
- Investing in the stock market, such as in companies like Nvidia or Luckin Coffee, can be a method of finance management for those looking for potential long-term growth, but it's important to carefully consider the advantages and disadvantages before making any investment decisions.