Nvidia (NASDAQ: NVDA) and Tesla (NASDAQ: TSLA) are two of the most popular growth stocks in the world today. It’s easy to see why – over the last five years, they’re up around 720% and 1,400% respectively.
Is one a better buy for my Stocks and Shares ISA than the other? Let’s compare the two US-listed growth stocks.
Business models
Let’s start with their business models. Nvidia designs high-powered computing hardware (GPUs) and also provides related software. This hardware is used in a range of industries including video gaming, cloud computing, artificial intelligence (AI), self-driving cars, and more.
By contrast, Tesla makes electric vehicles (EVs) and is working on autonomous driving technology. It also operates in the solar power, battery, and robotics industries.
In terms of the winner here, I think it’s Nvidia. To my mind, it has more growth potential given so many different industries rely on its products.
Competitive advantages
Now, both companies have competitive advantages. One of Nvidia’s is its CUDA software platform. Thanks to this platform, the company is building out an ecosystem.
Meanwhile, one of Tesla’s is its strong brand. This brand literally has a cult-like following.
It’s hard to call a winner here, but Tesla perhaps edges it.
Management
As for management, both businesses have legendary CEOs. Jensen Huang has transformed Nvidia from a small video game hardware company into one of the most important technology companies in the world.
Meanwhile, Elon Musk has single-handedly disrupted the automotive industry and helped EVs become mainstream.
There’s no clear winner here, in my view. Both CEOs are incredible.
Financials
Zooming in on the financials, here’s a comparison of some key metrics.
| Tesla | Nvidia | |
| 5-year revenue growth | 593% | 178% |
| Expected revenue growth this financial year | 22% | 103% |
| 5-year average gross margin | 21% | 63% |
| 5-year average return on capital | 8.6% | 21.1% |
Nvidia wins here, to my mind. Its revenue hasn’t grown as much as Tesla’s over the last five years. But looking ahead (and ahead is what counts), its top line is expected to explode.
And in terms of profitability, it has smashed Tesla over the last five years.
Valuation
Looking at valuation, for the year ending 31 December 2024, Tesla is expected to generate earnings per share (EPS) of $4.36. That puts its forward-looking P/E ratio at about 59.
For the year ending 31 January 2025, Nvidia is expected to generate EPS of $17.10. That puts its P/E ratio at about 27.
Nvidia is the clear winner here. It’s a much cheaper stock.
Risks
As for risks, both companies face a lot of them. Both are cyclical in nature. If economic conditions deteriorate, demand for EVs is going to fall. But so is demand from Nvidia’s end customers.
Both companies also face intense competition. Nvidia is up against other chip designers like AMD, Broadcom, and ARM. Meanwhile, Tesla is up against a stack of auto companies including the likes of Ford, BMW, and Rivian.
In terms of cyclicality, I’d probably give the edge to Tesla. In an economic downturn, it may be affected less than Nvidia.
In terms of competition however, I’d probably give the edge to Nvidia because it’s so far ahead of its rivals. For example, it currently has an 80% market share in AI.
My winner
Putting this all together, both companies appear to have a lot of potential.
However, Nvidia is the winner for me. Ultimately, I see it as the better growth stock for my ISA today.
