Nvidia (NASDAQ: NVDA) and Rolls-Royce (LSE: RR.) are two of the most popular growth stocks in the UK. Both have been phenomenal investments in recent years.
Looking out over the next six months, however, I’m predicting that the former will trounce the latter in terms of share price performance. Here’s why.
Nvidia’s valuation is near seven-year lows
The main reason I’m more bullish on Nvidia is its valuation. Right now, it’s near seven-year lows.
Taking the earnings forecast for the financial year starting in February 2027, the price-to-earnings (P/E) ratio for the chip stock is only around 16.7. That’s below the US market average and very low considering the company’s growth rate.
This financial year, Nvidia is expected to generate revenue of $393bn and earnings per share of $12.90. These forecasts represent year-on-year growth of 82% and 77% respectively.
To my mind, there’s a major mismatch between growth and the valuation. And I think it’s only a matter of time until investors spot the opportunity and pile into the stock, pushing its share price up.
It’s worth noting that the average analyst price target for Nvidia is $297 at present. That’s almost 50% above the current share price.
Rolls-Royce still looks expensive
Turning to Rolls-Royce, it’s a very different set-up valuation-wise. Here, analysts are expecting earnings per share of 44p for 2027, so the forward-looking P/E ratio is about 31 – almost twice Nvidia’s!
Meanwhile, growth forecasts for the Footsie company are not nearly as impressive as those for the chip company. This year, Rolls-Royce’s top line is only forecast to grow around 7% while earnings per share are expected to rise 26%.
So, while Nvidia looks really cheap today, Rolls-Royce looks quite expensive. Especially when considering growth levels.
Zooming in on analysts’ price targets, the average target here is 1,423p, which is only around 4% higher than the current share price. In other words, the analyst community doesn’t see much scope for gains in the medium term.
I’m backing Nvidia
Now, Rolls-Royce shares could still be worth considering for a portfolio. Because the company has quite a bit of momentum at the moment and while there are some risks around disruption to its civil aerospace division in the short term, there’s plenty of long-term growth potential.
I just think that Nvidia shares have far more potential in the medium term. They’re not a risk-free investment obviously, and concerns over a slowdown in AI spending could hurt the stock, yet with demand for its GPUs remaining high, I believe there’s an attractive opportunity here to consider.
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Edward Sheldon owns shares in Nvidia.
