The past five years have been brilliant for shareholders in Nvidia (NASDAQ: NVDA). The chip giant’s share price has soared 1,225% during that period. That is impressive by any measure. By comparison to Greggs (LSE: GRG), it is phenomenal. Greggs shares have sunk. The share price is 24% lower today than it was five years ago.
But as investors we do not have a time machine that lets us go back and invest in 2021.
Looking at the market today, could owning Greggs shares offer my portfolio more potential for growth over the coming five years than putting the same money into Nvidia?
It it not as daft an idea as it might sound.
Nvidia: brilliant company, with high expectations priced in
Nvidia’s soaring share price and the resulting $4.4trn market capitalisation (the world’s highest) are very much a case of “right place, right time”.
Soaring demand for chips driven by surging AI expenditure has seen sales and profits explode for Nvidia, thanks to its proprietary designs, deep customer relationships, and best-in-class capabilities.
What has propelled Nvidia in recent years could keep doing so. In that case, more substantial stock price gains could be on the cards over the coming five years.
But I feel the risks here are substantial.
It is unclear whether AI chip demand will even stay at its current level, let alone keep growing.
If demand does stay high, it will further encourage rivals to try to develop lower-cost alternatives to Nvidia’s pricey products, potentially hurting revenues and profits.
A stock price of 45 times earnings leaves little if any margin for underpeformance by the company.
Greggs: great company, with low expectations priced in
If Nvidia is the hare, then Greggs is the tortoise.
The FTSE 250 sausage roll specialist may seem to sit at the other end of the tech spectrum from Nvidia. In fairness, though, it has harnessed tech in the form of a customer app to try and grow its business.
Greggs share have slumped, partly because investors fear slowing growth. But it is still growing.
Now, that growth is nothing like what we have seen at Nvidia.
But I think it can continue, albeit in a slow and steady fashion. The high-end chip market could see a sudden drop in customer demand at short notice. I do not see that happening for steak bakes or yum yums.
Greggs does face risks. Mounting costs like higher National Insurance contributions could eat into profit margins.
But on balance I think the risk of a demand collapse or short-term increase in serious competition is far bigger for Nvidia than for the high street chain.
Greggs’ price-to-earnings ratio of 11 looks cheap to me.
Chips or pies? I’m backing one horse in this improbable race!
I believe Greggs does not have to do much to merit a higher share price in coming years: mostly proving its business can keep growing steadily.
Nvidia has to do a lot simply to justify its current share price, by contrast: it needs to maintain its exceptional growth story.
Even before considering Greggs’ 4.3% dividend yield (versus Nvidia’s 0.02% yield), I think Greggs shares could potentially be the stronger performer in the next five years. I own some.
