On Wall Street, very few things are guaranteed. However, change is one of the few constants.
Over multiple decades, it’s commonplace for Wall Street’s largest companies by market cap to be shuffled up and down the proverbial leaderboard. New innovations, mounting competition, legal judgments, acquisitions, collaborations, bankruptcies, and even acts of God contribute to this leaderboard carousel.
In June, for a brief moment, artificial intelligence (AI) leader Nvidia (NASDAQ: NVDA) ascended to the top pedestal and was the world’s most valuable publicly traded company. But as history has shown time and again, this fairy tale story is unlikely to last.
While high-growth AI stocks are currently enjoying all the glory on Wall Street, it’s my contention that, by 2029, three boring stocks — i.e., time-tested businesses that can continually deliver for investors without being in the spotlight — will be worth more than Nvidia.
History says Nvidia is going to lose its luster
In less than 18 months, we witnessed Nvidia’s valuation soar from $360 billion to a peak of almost $3.5 trillion. This never-before-seen climb for a market-leading business has been driven entirely by excitement surrounding artificial intelligence.
With AI, software and systems are given tasks that humans would typically oversee. The key here is that AI-driven systems have the capacity to learn without human intervention and evolve over time. Nvidia’s graphics processing units (GPUs) are effectively the brains powering decision-making in enterprise AI data centers.
Although Nvidia’s operational ramp has been virtually flawless, history tells investors that its stock is bound to lose its luster, sooner rather than later.
Despite there being a good number of next-big-thing innovations, technologies, and trends over the last three decades, all of which promised big-dollar addressable markets, none managed to avoid an early stage bubble-bursting event. Investors consistently overestimate how quickly businesses and/or consumers will adopt and utilize new technologies or trends. In other words, artificial intelligence hasn’t been given adequate time to mature as a technology, which almost certainly means the AI bubble is going to burst and drag Nvidia down with it.
Nvidia’s valuation has also reached a precarious level. When shares peaked at more than $140 on June 20, the company’s trailing-12-month (TTM) price to sales (P/S) ratio surpassed 43. This is pretty much on par with where the TTM P/S ratios of Cisco Systems and Amazon petered out when the dot-com bubble burst.
Nvidia is set to face operational challenges, as well. On top of external competitors taking on its AI-GPUs in high-compute data centers, Nvidia has to worry about its top four customers by net sales all developing AI-GPUs of their own. While these chips are unlikely to be superior to Nvidia’s, they’re going to be cheaper and are bound to take up valuable data center “real estate.”
The picture I’ve painted above suggests Nvidia can lose its trillion-dollar market cap in the coming years. But as Nvidia fades, I’d expect three tried-and-true boring businesses to leapfrog it in value.
Berkshire Hathaway
The first “boring” company that’s quietly but steadily delivered a nearly 20% annualized return spanning almost six decades is conglomerate Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Berkshire is run by billionaire CEO Warren Buffett, who’s delivered a greater than 5,325,000% return to his Class A shareholders (BRK.A) since taking over in the mid-1960s.
With a current market cap of $947 billion, Buffett’s company is knocking on the door of becoming a trillion-dollar business. Patience is the not-so-subtle secret that’ll help it surpass this psychological mark, as well as top Nvidia in market valuation over the next five years.
One of the many reasons Berkshire Hathaway has been unstoppable for so long is the Oracle of Omaha’s penchant for favoring cyclical businesses.
Buffett and his team are keenly aware that recessions are a normal and inevitable part of the economic cycle. They also know that recessions are short-lived, while periods of economic expansion typically stick around for multiple years. This is why Berkshire’s 44-stock, $404 billion investment portfolio is prominently composed of cyclical companies that can take advantage of lengthy economic expansions.
Warren Buffett and his team are big-time fans of dividend stocks, too. Public companies that regularly dole out dividends are often profitable on a recurring basis and have proven their ability to navigate recessions. What’s more, a report released from Hartford Funds last year found that income stocks have more than doubled up the average annual return of non-payers over the last half century — 9.17% vs. 4.27%.
Another reason investors should expect Berkshire Hathaway to leapfrog Nvidia’s market cap by 2029 is its mammoth share repurchase program. Buffett has bought back more than $77 billion worth of his company’s stock since July 2018. Share repurchases are helping to reduce the company’s outstanding share count, which is boosting its earnings per share (EPS).
Visa and Mastercard
The other two boring stocks that can leap past Nvidia’s market cap by 2029 are payment-processing juggernauts Visa (NYSE: V) and Mastercard (NYSE: MA). I’m discussing these companies together because they effectively share the same catalysts and headwinds.
Visa and Mastercard ended July with respective market caps of $514 billion and $428 billion. If both stocks were to double over the next five years, they’d have a realistic chance to top Nvidia’s valuation.
Being cyclical is definitely an overlooked, but important, catalyst for both companies. Financial stocks undeniably benefit when the U.S. and/or global economy are expanding. Since recessions usually resolve in less than a year, it means Visa and Mastercard are regularly benefiting from growth in consumer and enterprise spending.
To build on this point, both companies have chosen to avoid participating as lenders. While this does mean forgoing the potential to collect interest income from cardholders, it removes any direct loan loss or credit delinquency liability during economic contractions and recessions. Neither Visa nor Mastercard have to set capital aside to cover losses during downturns, which is a big reason they’re able to bounce back so quickly from recessions.
Despite their size, Visa and Mastercard can sustain their double-digit earnings growth rates throughout the decade, if not well beyond. They’re both able to generate predictable cash flow from developed markets, and are staring down a multidecade expansion opportunity into fast-growing but chronically underbanked regions of the world, including the Middle East, Africa, and Southeast Asia. Persistent double-digit cross-border volume growth speaks to this international opportunity.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $669,193!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of July 29, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Amazon, Mastercard, and Visa. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Cisco Systems, Mastercard, Nvidia, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
Prediction: 3 Boring Stocks That’ll Be Worth More Than Nvidia by 2029 was originally published by The Motley Fool
