The stock market can give desired returns if you invest strategically, while maintaining practical expectations. There are instances when growth stocks like Nvidia (NASDAQ:NVDA) break out and provide windfall returns, but that needs patience. And there are instances when growth is sustainable and calculated. If you have $2,000 to invest in the stock market, you can buy U.S. stocks with your Tax-Free Savings account (TFSA) and also enjoy the tax benefits that come with it.
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The obvious growth stock to buy with $2,000
Smart investing is pretty simple. Buy the dip and sell the rally. However, it is difficult to implement because we often doubt our research when a fundamentally strong stock dips.
Let’s take Nvidia. The stock has proven its artificial intelligence (AI) prowess. Its graphics processing units (GPUs) are unbeatable. The stock price rally has pushed it to a valuation of 28 times its sales per share and 30 times its forward earnings per share. This stock valuation shows that the market has priced in triple-digit revenue growth for the next 12 months. And there is no denying that more growth is in the cards.
It may not be smart to buy Nvidia near its all-time high as you can only get 20–30% growth, but the risk of a downside is higher. There are risks, such as a slowdown in data center GPU demand. If U.S. President-elect Donald Trump imposes a 25% tariff on imports, the GPUs could get expensive as TSMC manufactures Nvidia’s GPUs in Taiwan. A possible trade war could impact Nvidia’s sales in the short term, as it did in 2018 when there was an outright ban on the export of Nvidia’s GPUs to China.
The smartest growth stock to buy with $2,000
Instead of going for the obvious, you could consider the smarter option. Advanced Micro Devices (NASDAQ:AMD) is late in the AI race but it has made a stir in the market and caught the attention of tech giants with its AI EPYC series for data centres and Ryzen AI Pro series for personal computing.
AMD doubled its revenue and tripled its operating income from the data centre segment. It even doubled its profits from the PC business in the last two quarters from April to September. However, the AMD stock price has fallen by 14.5% in the last 12 months, underperforming Nvidia and the Nasdaq 100, which surged 166% and 26.6%, respectively.
The market has not realized AMD’s AI potential. The company’s growth strategy is not to be the industry’s first but to be the industry’s efficient alternative. AMD studies market demand and rolls out cost-efficient products that deliver the performance industry needs. When growth picks up, its stock price doubles.
Demand for data centre and PC chips is cyclical. All companies have rushed in to buy GPUs to power their AI applications. Once these data centres have the necessary capacity, technology spending could slow as the industry takes time to absorb this capacity. At that time, they might switch to alternatives like AMD when they need efficient compute performance instead of the best performance.
How to maximize returns from AMD
If you look at AMD’s five-year stock price performance, it has reported three growth cycles: 195% (July 2020 to November 2021), 116% (October 2022 to May 2023), and 115% (October 2023 to March 2024). These growth cycles were led by new product launches. This trend shows that AMD is a stock to buy the dip and wait for the next product cycle.
AMD’s technical indicators suggest that the stock is oversold, creating a perfect buying opportunity. You could consider selling the stock once your investment doubles and again buy the dip.
