Nvidia (NASDAQ: NVDA) and Tesla (NASDAQ: TSLA) are two of the most popular stocks in the world. It’s easy to see why – over the last decade they’ve both made long-term investors a ton of money.
Is one a better buy for a Stocks and Shares ISA today? Let’s compare the two growth stocks and have a look.
Comparing their business models
Before I dive into the numbers, it’s worth touching on their business models.
Nvidia specialises in designing powerful ‘accelerated computing’ hardware (GPUs) and related software. And today, its hardware is powering the artificial intelligence (AI) revolution.
Meanwhile, Tesla makes electric vehicles (EVs). However, it’s also a major player in self-driving technology, robotics and AI, and it’s planning to release some news in relation to robo-taxis in August.
I think both companies have a lot of potential from an investment perspective. In the long run, both could get much bigger as the world becomes more digital.
Which company’s performing better?
However, if we look at business performance today, Nvidia’s the clear winner.
This year, Nvidia’s forecast to generate revenue and earnings growth of 98% and 108% respectively (incredible numbers).
Tesla, by contrast, is forecast to generate revenue growth of just 2% and its earnings per share are expected to fall by about 18%.
So Nvidia has far more momentum at the moment. The reason for this is simple. Currently, all the Big Tech companies (including Tesla) are scrambling to buy its chips. Tesla, on the other hand, is facing challenging conditions in the EV market as a lot of consumers have run out of cash (and cooled a little on EVs).
Which stock’s cheaper?
Now, given Nvidia’s spectacular revenue and earnings growth, you’d expect its valuation to be higher than Tesla’s. Yet, bizarrely, its valuation is significantly lower than the EV company’s.
Looking at current earnings forecasts, Nvidia has a price-to-earnings (P/E) ratio of 47, falling to 35 using next year’s forecast. Meanwhile, Tesla has a P/E ratio of 96, falling to 72.
So Nvidia’s a much cheaper stock, despite the fact its share price is up around 150% this year.
Examining their risks
As for risks, both companies have them. For Nvidia, the main one is that customer orders slow. History shows that this will happen at some point. We just don’t know if it’ll be next quarter or next decade.
For Tesla, the biggest risk is a continued drop off in consumer spending and demand for EVs. This would impact its revenues and earnings.
The winner?
Putting this all together, Nvidia’s the winner for me out of the two stocks.
There’s no guarantee that it will outperform Tesla going forward, of course. However, with its higher level of growth and significantly lower valuation, it’s the stock I’d choose if I had to pick one for my Stocks and Shares ISA today.
