Growth stocks quickly fell out of fashion last year as rising interest rates created massive headwinds for unprofitable capital-intensive enterprises. But following the latest excitement surrounding AI, shares of Nvidia (NASDAQ:NVDA) have exploded. In fact, since the start of 2023, they’re up by nearly 250%!
In my opinion, Nvidia is a fantastic company. However, even the best enterprises can still be terrible investments if the price paid is too high. And given the semiconductor stock is currently trading at a P/E ratio of 120, the valuation looks utterly unsustainable in my eyes.
Fortunately, Nvidia isn’t the only growth company on the stock market. And here in the UK, plenty of fast-expanding businesses are trading at far more reasonable valuations. Some even look cheap!
With that in mind, let’s look at two UK shares I believe are far better buys than Nvidia today.
An unloved picks & shovels play
Until recently, Keywords Studios (LSE:KWS) was a darling among British growth investors. The group provides critical talent services to the video game industry, working with some of the world’s largest studios. It provides solutions to the entire development pipeline, from 3D modelling to programming, localisation, bug testing and more.
However, with the rise of generative AI, it seems many investors are getting nervous about the group’s long-term potential. After all, if a machine can replace the role of humans, Keyword’s business model may be disrupted. As such, the shares are down over 30% in the last 12 months.
While some concern is justified, I think investors may have jumped the gun. For starters, the management team isn’t blind to this threat and has already been investing in implementing AI tools and solutions for years. In the meantime, the group continues to impress.
In its half-year trading update, sales are still up by double-digits while profit margins remain intact. And with the stock now trading at a forward P/E ratio of 15, Keywords looks like a dirt cheap growth stock in my eyes.
In the grim darkness of the 41st millennium, there is only profit
Considering the UK is in the process of narrowly avoiding a recession, buying expensive tabletop miniatures seems like an unlikely priority for most households. But Games Workshop (LSE:GAW) begs to differ. The creator of the Warhammer universe continues to post record sales and profits as hobbyists can’t get enough of the addictive game.
In the 12 months leading to May this year, sales increased by £56m, reaching £470.8m, with operating profits landing at £170.2m. That’s the highest level reported in the history of the entire company. And it was achieved in the middle of a cost-of-living crisis.
With no debt on the balance sheet, the group appears to be in tip-top shape. Of course, should the British economy take a turn for the worse, the group’s current resilience could be tested, potentially causing growth to stagnate. But given Games Workshop’s impressive track record, that’s a risk I feel is worth taking.
