Sometimes people have to accept that we don’t always make the best investment decisions. Therefore, I thought I’d turn to ChatGPT and ask it to name the top growth stock in the S&P 500.
Which one is generative AI’s favourite?
The generative artificial intelligence (AI) tool initially gave me a list of six companies from the index. Technology giant Nvidia (NASDAQ:NVDA) was the first name on the list. Surprise, surprise.
The other names were Amazon, chipmaker Advanced Micro Devices, defence company Axon Enterprise, and cybersecurity firm Fortinet.
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”Can you narrow it down to one company?” I next asked it. Nvidia was the answer.
The reason given was the company’s domination of the graphics processing unit (GPU) market and leadership in the AI revolution. It touched on the tech giant’s expensive valuation, but thought this was justified because of the company’s strong growth and outlook.
In all truthfulness, this didn’t enlighten me. The points it provided were very basic and generic, so, I was somewhat disappointed.
My thoughts on Nvidia
I agree that Nvidia is a great company. Its growth frankly astounds me. Revenue is set to rise by a staggering 112% in FY25. It’s then expected to rise by 52% in FY26.
Achieving this level of growth as a small company is difficult. However, it’s particularly exciting to see the company turn $27bn of sales in 2023 into an expected $196bn by 2026. For a blue-chip stock, this is seriously impressive.
The success is also feeding into its bottom line. In the last quarter, earnings increased by 168% year on year.
For this reason, the stock price has risen by 859% since the start of 2023, leading many to believe Nvidia stock is expensive. However, I disagree with this notion. I actually believe its forward price-to-earnings (P/E) ratio of 32.8 is cheap for the firm.
Nvidia’s GPUs are becoming a cornerstone in the AI sector. It also looks likely to dominate the AI arms race with growth rates that are far superior than the already strong compounded annual growth rate (CAGR) of 37% for the industry.
One concern I do have about the company is potential Trump tariffs. If materials to produce its products become more expensive because of these, it could have a very detrimental impact on the company’s earnings.
My qualms with ChatGPT
I want to finish this article by saying that while I understand why it chose Nvidia as its top choice, I’m disappointed that it missed out Palantir (NASDAQ:PLTR) from its initial list.
The company was the biggest winner in the S&P 500 in 2024, with its shares rising by 341%. This is because it’s also experiencing accelerated growth from the rise of AI.
However, maybe the generative AI tool had its reason. For a company with a market cap of $155bn, Palantir’s trailing 12-month revenue of $2.6bn is concerning. Any weakness could send the stock price falling. For example, an insider sold $36m of Palantir stock a few days ago (7 January), which prompted an 8% share price drop.
Regardless, I don’t think ChatGPT provided me much use in my quest to find the best growth stock in the S&P 500. I believe it’s still better for an investor to do their own thorough research instead of using AI for stock-picking purposes.
