Nvidia, the top-performing tech stock for two years, may see its growth slow down in 2025. While it’s likely to deliver a strong performance, another big tech stock, Alphabet (GOOG), could outperform it. Here are a few reasons why.
Alphabet’s multiple business segments are thriving, particularly Google Search and Google Cloud. In Q3, Alphabet’s Google Search revenue rose 12.3% year over year, while its cloud computing division, Google Cloud, saw a 35% year-over-year increase in revenue. This growth is largely attributed to its generative AI toolkit.
Despite making up only 13% of the overall business, Google Cloud’s growth has had a noticeable impact on Alphabet’s top-level revenue growth and earnings per share (EPS). With an EPS rise of 37%, Alphabet’s earnings multiple isn’t in line with its business performance. This is reflected in its lower price-to-earnings ratio compared to Nvidia.
In contrast, Nvidia’s stock trades at a 49 times forward earnings multiple, making it significantly more expensive than Alphabet. Meanwhile, Microsoft and Apple, which have similar or slightly better EPS growth, trade at 31 and 30 times forward earnings respectively.
As the market is undervaluing Alphabet and overvaluing Nvidia, this discrepancy could create an opportunity for investors to pick up a high-value stock that’s expected to outperform in 2025. With Alphabet’s growing EPS and expanding earnings multiple, it may be able to surpass Nvidia’s performance next year.
Source: https://www.fool.com/investing/2024/11/04/prediction-this-stock-will-outperform-nvidia-in-20