For most Americans, an extra $1,000 would be used to pay off some bills or finance a nice vacation. But if you put that money in the stock market, it could help set the stage for impressive long-term returns. Let's discuss the pros and cons of Nvidia (NVDA -2.09%) and Luckin Coffee (LKNC.Y 0.12%) and decide whether their stocks are good buys.
Nvidia
With shares up by a whopping 179% year to date, Nvidia has been one of 2024's top performers as it continues to dominate the generative artificial intelligence (AI) industry. Operating results continue to soar, and there are no signs that the company will lose its dominant position any time soon.
Earnings for the third quarter of fiscal 2025 were yet another slam-dunk for the chipmaker. Revenue jumped 94% to $35.1 billion, driven by continued demand for its advanced graphics processing units (GPUs), which are used to run and train AI algorithms. The company is expected to maintain its phenomenal growth rate through new product releases, such as Blackwell, a new family of GPUs designed to boost speed and efficiency for AI workloads.
However, while Nvidia has no problems selling its products to cloud infrastructure giants like Alphabet and Meta Platforms, the industry remains highly speculative. Consumer-facing AI isn't easy to monetize. Industry leader OpenAI is expected to burn through $5 billion this year. It's unclear how much longer Silicon Valley will be able to sustain these losses before scaling back AI capital expenditures.
That said, with a forward price-to-earnings (P/E) of 32, Nvidia shares are very reasonably priced, considering its triple-digit growth rate. The company's valuation seems to price in potential industry challenges.
Luckin Coffee
While Luckin Coffee carried my portfolio since 2021, performance has begun to stall, with shares down by 18% in 2024. Growth-eroding competition and an economic slowdown in China have weighed down the coffee chain's valuation. That said, the opening of new markets like the United States could spark a sustainable turnaround.
Net revenue in the third quarter increased 41% from a year ago to $1.45 billion through organic growth and 1,382 new store openings (bringing the total to 21,343). This would be a fantastic growth rate for most companies, but it represents a sharp deacceleration from the 85% growth rate reported in the corresponding period of 2023. The slowdown likely comes from economic weakness in China and competition from rival Cotti Coffee, which imitates Luckin's drink variety and contact-free service.
Over the coming years, Luckin could reaccelerate growth through international expansion. According to the Financial Times, the chain plans to enter the U.S. market as early as next year, with a push into major cities with large Chinese student populations like New York. Luckin's vertical integration (it built its own roasting plants) will help it potentially undercut established rivals like Starbucks on price.
With a forward price-to-earnings multiple of just 14, Luckin Coffee shares are stunningly cheap, especially if the U.S. expansion is successful. The company likely still trades at a sharp discount because of its fraud scandal in 2020, giving investors a chance to bet on its comeback.
Which stock is the better buy?
Image source: Getty Images.
Nvidia's shares have dramatically outperformed Luckin Coffee this year, but new investors might be late to the party if they decide to buy the stock now. While AI infrastructure demand remains strong, the consumer-facing side of the industry seems far from mainstream adoption.
Over the coming years, I think Luckin Coffee stock looks poised to perform better because of reasonable valuation and expansion into the U.S. and other large markets.
