Better buy: Netflix vs Nvidia

In a battle of growth-stock giants, one walks away with a clear win.

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

Few stocks see as much market action as Netflix (NASDAQ: NFLX) and Nvidia (NASDAQ: NVDA). On an average market day, Netflix shares worth roughly $2.8 billion are changing hands. Nvidia's daily dollar volume is an even beefier $12.1 billion. Furthermore, both of these are seen as high-octane growth stocks, and investors must have made many of the trades mentioned above after weighing these two against each other.

So let's run through that comparison right now. Should you buy Netflix stock today, or is Nvidia a better buy?

Why should you buy Netflix?

These are still early days in the making of a global entertainment giant.

TV networks and feature films are moving online as we speak; 25 million American families dropped their cable TV packages between 2012 and 2020, and the transition is not slowing down. On the silver screen, global box office totals were stagnant for a decade while video-streaming services moved from zero to 1 billion subscribers.

Netflix has been leading the charge all along. The top media-streaming service now has 222 million paying subscribers, generated $29.7 billion of top-line sales last year, and regularly dominates the media industry's awards season.

And the growth story is far from over. According to data from Nielsen, Netflix accounted for just 6.4% of media-consuming screen time in December 2021. Old-school options still dominate the domestic media universe as 26% of that month's screen hours were directed at broadcast TV, and cable/satellite channels won the day with a 37% slice of the pie.

And that's in one of the most mature and saturated media-streaming markets in the world. Netflix and rivals should be able to triple in size during this market transition, and the growth opportunity is even more significant in most of the markets overseas.

And investors seem to have lost sight of this fantastic growth story. Its shares barely kept up with the market in recent years, and then a temporary subscriber-growth speed bump slashed share prices in half.

Netflix shares are on fire sale, but the long-term growth story is as clear as ever. So this is a no-brainer buy in my book.

Why should you buy Nvidia?

Like Netflix, Nvidia has several powerful growth drivers:

  • As always, its number-crunching chips are locked in battle with Advanced Micro Devices over the lucrative market for video game systems and gaming consoles.
  • The company is also making inroads in the data center, focusing on the computing-intensive sub-sector of artificial intelligence.
  • Nvidia also provides a complete platform for self-driving cars, opening the door to yet another high-octane growth market.
  • Cryptocurrency mining is another important target market, though management keeps brushing that particular business under the rug. Given the crypto sector's propensity for sudden and massive swings, this is both an explosive growth vector and a source of significant risk.

So Nvidia is tapping into a plethora of promising market trends, often as a clear-cut front-runner. Wall Street is paying attention to this company's success, and Nvidia has been crushing the broader market over the last five years.

The stock has taken a 30% haircut in the last three months as investors backed away from richly valued growth stocks. Many see it as a great buy after this substantial price drop, but Nvidia still looks expensive with shares trading at 55 times trailing earnings and 20 times sales.

Final verdict: Buy Netflix, hold Nvidia

We could very well be looking at two long-term winners here, but I'm much more comfortable with buying Netflix at today's prices.

The media-streaming growth story is much clearer than the ever-changing semiconductor industry. At the same time, Netflix's stock has been stuck in neutral or worse for years while Nvidia's stock is skyrocketing in the five-year perspective.

Therefore, Netflix is simply a fantastic buy today while Nvidia's stock might already have much of the upcoming business growth priced in.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Anders Bylund owns Netflix. The Motley Fool owns and recommends Advanced Micro Devices, Netflix, and Nvidia. The Motley Fool has a disclosure policy.


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