For most people, $1,000 is a fair bit of money. But it could become much more if invested in the right companies over a long enough time frame. Red-hot tech companies like Nvidia (NASDAQ: NVDA) and Duolingo (NASDAQ: DUO) have already rewarded investors this year. Let’s discuss why their bull runs might just be getting started.
With its share price almost doubling so far in 2023, Nvidia is rapidly bouncing back from the impacts of the 2022 bear market. While macroeconomic challenges remain, Nvidia’s competitive advantages in artificial intelligence (AI) could help keep the company’s rally going.
With inflation high and consumer spending power under pressure, Nvidia has seen weakening sales for its discrete graphics processing units (GPUs), a type of hardware popular in high-end gaming computers. But like all business cycles, investors should expect these headwinds to fade eventually.
Nvidia’s long-term thesis remains intact because it continues to dominate its niche, with a 78% shipment share as of 2022, according to data from Statista.
Nvidia’s products also have applications outside of gaming. Its $10,000 A100 graphics card was used to train OpenAI’s ChatGPT AI chatbot. And CNBC reports that its successor, the H100, is selling for over $40,000 on third-party websites like eBay — perhaps a sign of pent-up demand for its processing power as more companies build AI platforms.
With a forward price-to-earnings (P/E) multiple of 60, Nvidia stock is quite expensive. But, like many things, you get what you pay for. And investors should expect to pay a premium for a company that can lead such an advanced industry.
Up 99% year to date, Duolingo is another beaten-down tech getting a new lease on life. While the company still faces profitability challenges, its rapid growth rate and improving cash flow could reward patient investors.
As global incomes rise and the world becomes more interconnected, there is a growing interest in learning new languages for travel, work, and recreation. Duolingo meets this need through its language learning app with over 25 courses ranging from French to Klingon (the language of Star Trek). The company’s main selling point is its ad-supported freemium business model, where users can pay for additional perks, such as ad-free learning and additional practice.
Business is booming. Fourth-quarter revenue jumped 42% to $103.8 million based on similar growth in the number of monthly active users. And while the company generated a net loss of $13.9 million, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged from $0.3 million to $5.2 million. This figure adds significant stock-based compensation expense back but shows Duolingo is beginning to scale up and improve its cash flow.
The importance of diversification
While $1,000 can be a nice start to your investing journey, you don’t have to put it all in one place. Diversification is the practice of spreading your cash across several different stocks, reducing exposure to risk in any specific one. With their rapid growth rates and deep economic moats, Nvidia and Duolingo might have a place in your investment portfolio.
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