The Nvidia (NASDAQ:NVDA) share price continues to move higher after results earlier this week. Up almost 10x from the start of 2021, the stock has been flying. As I think the rally could start to stall, I’m keen to look at what made the company take off and try and find a similar UK stock that could potentially offer me similar returns.
Thinking about key points
There are a few elements that have helped Nvidia do so well over the past few years. To begin with, the business was at the heart of a growth sector, namely artificial intelligence (AI). This isn’t just a flash in the pan, this is going to be a big theme for years to come.
Another factor was popularity. Both retail and institutional investors jumped in once the stock started to get more publicity. From then on, it has become almost a self-fulfilling prophecy as it has almost become uncommon for someone not to own the stock.
Finally, the stock needs to have the potential for growth. Nvidia had a relatively small market cap back in 2021. This meant that it could really surge in value for a long period before the market cap reached the dizzying heights that it’s at today.
An idea I like
Based on those factors, I like the look of ITM Power (LSE:ITM). It’s an energy storage and clean fuel company, that manufactures electrolysers that help to produce green hydrogen.
It gets a big tick in the box for being in a growth sector. Renewable energy is going to be key over the next decade. The ability for green hydrogen to help generate electricity means that it has a huge amount of commercial uses. There really is no limit on the potential revenue opportunity.
Popularity is another point that ITM Power certainly had in the past, and could have again. From the start of 2020 to the middle of Q1 2021, the share price jumped tenfold. This was on the back of a mix of good news regarding it signing new deals, as well as a huge amount of retail investor interest.
The stock is now back at 51p, so similar to late 2019 levels. Higher-than-expected losses in recent years have hurt the share price, which is down 28% over the past year. This means the market cap is now at £316m. It’s not a penny stock, but certainly not a large-cap name. As such, the share price has room to run higher before the market cap gets unrealistic.
Finances are a problem
One key difference between ITM Power and Nvidia is the finances. Nvidia was (and still is) a very profitable company. ITM Power lost £101m in the last financial year. The firm needs to focus on more product and service revenue in order to flip to being profitable. Ultimately, if it can’t get to a position of posting a profit, any large share price rally is going to be tough.
I do see value in ITM Power shares right now and am thinking about investing a small amount. Of course, it’s not a low-risk idea. But then again, if someone was looking at Nvidia back in 2021, I doubt few would have predicted the meteoric rise either.
