3 Red-Hot Stocks With Long-Term Growth Potential

Stocks to buy

Many value investors may ignore the red-hot stocks in the market just because of their momentum. Undoubtedly, stocks that surge by double-digit percentage points in a matter of weeks are too hot to touch for many investors. So, momentum alone does not indicate a bubble or even overvaluation.

As long as the fundamentals are improving and the earnings growth is moving accordingly, stock price appreciation may be warranted. And, you may have situations where high-flying stocks appear cheaper after a sizable upward move.

Let’s check three momentum stocks that have the potential to be long-term winners.

Nvidia (NVDA)

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Based on traditional valuation metrics, Nvidia (NASDAQ:NVDA) stock certainly looks cheaper after its latest blowout quarter. Still, many may continue to slam Nvidia as a bubble, even as it readies its next generation of chips to fuel a demand boom that Nvidia alone may not be able to fill alone.

Finishing Thursday’s session up more than 4%, the AI chip kingpin bounced back from a brief correction. Now, that’s starting to look like a pretty solid, albeit short-lived, buying opportunity. With the $1,000 level realistically in sight, rushing to the exits may prove ill-timed, especially as Blackwell looks to repeat the magic in 2024.

Undoubtedly, there’s a high bar to pass for NVDA now that expectations have risen so high. However, at 36.1 times forward price-to-earnings (P/E), the stock actually looks too cheap for its own good. True, the chances are high that Nvidia stock’s multi-year bull run will end in a painful sell-off. Until then, though, you’ll have to look far and wide to find something to be bearish about.

Perhaps Nvidia’s numerous collaborations with other tech titans, as outlined in its 2024 GTC conference, could be key to keeping growth going strong. Either way, I don’t think it’s too late to hop aboard the NVDA stock bandwagon as long as a 20-40% drop over the near term won’t deter you.

Amazon (AMZN)

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Amazon (NASDAQ:AMZN) is another tech juggernaut that’s making the most of the great AI bull market. Recently, shares hit all-time highs for the first time since mid-2021. It has a larger $4 billion stake in Anthropic and a more deliberate investment strategy that entails cautious strategic cost cuts and aggressive AI spending. Thus, Amazon may be in a spot to take its growth to the next level.

Also, Amazon’s AI-focused growth story may seem somewhat similar to its public cloud peers. The company is betting big on its own AI acceleration hardware. In fact, it spares no expense in investing in third-party large language model (LLM) companies. And, it’s been doubling down on the cloud’s AI-focused future.

What sets Amazon apart from the pack, though, is its legendary management team’s hunger to disrupt. CEO Andy Jassy is serious about capitalizing on the generative AI revolution while minimizing expenses where possible. Perhaps big bets in AI today may lead to the biggest cuts down the road. Either way, I would not dare bet against the company now that its stock is chasing new highs again.

Apple (AAPL)

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Never discount Apple (NASDAQ:AAPL) and its ability to innovate in a fast-moving, AI-driven technological landscape. The stock surprised many when it blasted off 4.33% over $175 per share on Thursday on news that its coming M4 chip will be AI-focused.

Indeed, an AI-driven M4 could breathe new life into the company’s stagnant Mac business. And it may do so sooner than many skeptics think, with the chip that could land as soon as this year.

Indeed, the Mac is a relatively small part of Apple’s business as it stands today. And so, it could grow to contribute a larger piece of Apple’s revenue pie in the near future if it makes AI PCs better than rivals.

Combined with a robust services business (perhaps an AI service will be in Apple’s future) and the potential for an AI-powered A-series chip for a future AI-focused iPhone, AAPL remains one of the best deals. It’s just 27.2 times trailing price-to-earnings.

On the date of publication, Joey Frenette owned shares of Apple and Amazon. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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