AI chip giant Nvidia (NASDAQ:NVDA) has certainly been one of the best mega-cap stocks investors could have (and probably should have) been invested in over the past few decades. This is a stock that’s retained its historically high multiple, and even seen multiple expansion over time. But as Nvidia’s high performance chips have taken over the market, so too have the hearts and minds of traders looking for a clear winner to profit from this long-lasting trade.
Key Points
- Nvidia has been Jim Cramer’s clear long-term winning pick for those who follow his advice.
- However, there is one other stock pick which appears to have the potential to outperform Nvidia over the long-term.
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CNBC personality Jim Cramer has been among the leading talking heads promoting Nvidia over this time frame. Indeed, Nvidia remains one of his best long-term single stock suggestions. No doubt about it.
And aside from the skeptics who may be looking to short Cramer via inverse ETFs (that was funny, by the way), there are others who listen what the man has to say. After all, he’s been around Wall Street and CEOs for a very long time, and he clearly does his homework on key companies he looks at pretty consistently.
Here’s why I think Crowdstrike (NASDAQ:CRWD), a Jim Cramer favorite, could have the potential to provide even greater returns than Nvidia over the course of the next decade or two.
Don’t Forget About Cybersecurity
Loading stock data...Cybersecurity stocks such as Crowdstrike have ebbed and flowed in terms of performance over the course of the past year. Looking at the stock chart above, it’s clear that most of the momentum (at least of late) has been to the upside. Indeed, with a 70% return over the past year alone, few could argue that CRWD stock has been an underperformer of late.
That said, there are reasons why the company’s five-year chart looks like it does. Cybersecurity stocks, and a host of other high-growth names, saw significant selling pressure in 2022 as investors looked to rotate out of companies that were viewed as overvalued. Valuation has been a key headwind for companies like Crowdstrike in this space, and the stock still isn’t cheap trading at 400-times trailing earnings and more than 27-times sales.
That said, the cybersecurity sector is also one that’s inherently defensive. Large corporations to small mom-and-pop shops have to pay for some level of cybersecurity, or risk the complete potential downfall of their business. Even a small chance of utter ruin is enough to keep the spending spigots on, and cybersecurity spending is often one of the last things to go. Plus, with various issues seen at competitors around bugs and updates turning clients off, CrowdStrike is among the leading companies I think is well-positioned to take market share in this space over time.
Strong fundamentals
A couple looking at financial statements
Another key component of Jim Cramer’s thesis around CrowdStrike revolves around the company’s strong growth rate and balance sheet. The cybersecurity giant has managed to continue to grow its revenue at a double-digit pace (around 30% per year in past years), as subscription revenue continues to grow as a share of overall. Given CrowdStrike’s scale, these numbers are impressive, and certainly do justify a valuation premium.
If CrowdStrike can hit its own targets and achieve an overall annual recurring revenue of $10 billion per year by 2031, this is a company that would be worth around $250 billion at its current multiple (an increase of around 150% from here).
Of course, a lot would need to go right in order for this to take place, and there would likely need to be some sort of revenue acceleration for CrowdStrike to achieve these targets. But given the company’s core recurring revenue business model, there is ample reason for this stock to continue to trade at elevated multiples for the foreseeable future.
Is Jim Cramer Right About This One?
Man thinking with a red question mark above his head
My view is that CrowdStrike is certainly one of the best cybersecurity names in this sector, and I can’t disagree with Jim Cramer on the company’s strong underlying business model and its growth prospects moving forward.
Where I’m on the fence with respect to CrowdStrike is the company’s valuation multiples. There’s a lot of growth that’s already priced into this stock. CrowdStrike will either need to see a massive acceleration on the top- and bottom-lines to justify a surge in its share price from here. In other words, this is a stock that’s priced near perfection (in my view) where investors essentially need to bet on everything going right (and then some) to see upside over the next few years.
In my view, that’s a risky proposition and not one I’d be eager to take on right now. To each their own. But I’m going to happily wait on the sidelines until valuations come down (as they did in 2022) before jumping in with both feet on this high-quality blue-chip tech giant.
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