Is now a good time to invest in the S&P 500? – 3 share ideas

GE Healthcare – imaging a brighter future

GE Healthcare is a top-tier provider of medical technology. It has a leading position in imaging equipment like X-ray machines and MRI scanners. This is the biggest part of the business and leaves it well-placed to address the ageing global population and the demand for early detection of cancer and other illnesses.

It’s not all about lumpy, expensive hardware sales though. There are a host of consumables and software add-ons that help smooth the revenue profile.

The huge volumes of data generated by medical imaging tests mean there’s plenty of scope for artificial intelligence (AI) to improve patient outcomes and efficiency within healthcare systems. It’s an opportunity the company is pursuing aggressively and GE is already generating commercial traction.

GE closed out 2024 with a quarter of modest revenue growth and margins expanding quicker than guided. Headwinds in China weren’t enough to offset growth elsewhere, but it’s something to keep an eye on especially as trade tensions mount.

However, China’s a relatively small part of the revenue mix, with North America by far the largest region by revenue. Economic uncertainty is also building in the US, but essential diagnostic services tend to be relatively resilient to cyclical ups and downs.

Overall, organic revenue growth is expected to improve this year. And there’s hope for further progress towards the medium-term target of operating profit margins approaching 20%, driven by efficiency gains and product innovations.

To achieve all this, GE spends over $1bn a year on Research & Development, but that’s supported by healthy cash flows and a strong balance sheet. The high pace of innovation carries some execution risk. But the valuation doesn’t look too demanding, and investors could be rewarded if the plan can be delivered.

Nvidia – AI leadership credentials intact

Despite another set of forecast-beating earnings, as well as better-than-expected guidance for the current quarter, NVIDIA’s valuation has slid further below the long-term average so far this year.

We think it’s been caught up in the wider pivot towards more defensive sectors. But, it also reflects concerns about trade restrictions and the scale of future demand for NVIDIA’s powerful computer processors.

We’re encouraged by the innovations set out at the company’s recent developer conference. The group looks well positioned to retain its leadership in computing for AI as the focus moves from the training of models to reasoning in real-time or inference. While there are some meaningful rivals emerging in the inference space, NVIDIA offers a compelling solution to its customers.

It’s not just the chips that make NVIDIA’s product so appealing, the CUDA software platform that enables users to optimise the hardware is key. AI has the scope to transform practically every industry, and NVIDIA is proving to be a key partner in everything from healthcare through to self-driving vehicles.

However, the ability to scale does depend on key partners.

While recent production constraints seem to have been addressed, there’s no guarantee the supply chain will continue to keep up with soaring demand. That said, the next iteration of the company’s computing architecture is expected to be less challenging to roll out.

CEO Jensen Huang thinks there’s scope for revenues to grow more than five-fold to $1tn by 2028, but it’s too early to say how likely that is.

In the near term, forecasts for revenue to nearly treble to over $250bn by the end of the next financial year don’t feel unreasonable. On that basis, a prospective earnings multiple of 25x looks attractive. But the company is under immense scrutiny, so any missteps are likely to be punished.

Uber – from rides to riches

Uber, America’s leading ride-hailing service, is transitioning into a global transportation powerhouse, offering food delivery and freight services.

Its asset-light model connects drivers and riders, delivering better value and service as user numbers grow and the network broadens.

Thanks to its multi-service offering, Uber's ride-hailing, delivery, and freight services attract a broad range of customers. Many Uber Eats users come from the rides app and vice versa, which helps to keep more customers on the platform and boost overall usage and spending.

The ride-hailing arm is the main money-maker, and trends have improved here.

It’s expanding into new regions, allowing fixed costs to be spread across more journeys. This helps them keep prices competitively low, win more rides, and increase drivers' earnings – a key factor in growing its fleet and improving the user experience.

There are some challenges though, including regulatory hurdles and ongoing disputes with local taxi drivers. Stiff competition can also lead to heavy price discounting. It’s important that Uber remains competitive on costs, without compromising on service levels or its variety of offerings to consumers.

Uber's food delivery business is growing at pace, becoming profitable and expanding beyond food to groceries and other essentials. Advertising revenue in this division is expected to grow faster than order revenue, as Uber effectively targets user-centric ads based on habits.

Autonomous Vehicles (AV) are an emerging trend, and Uber plans to approach this by enabling AV partners to scale using their platform, rather than building vehicles themselves. We support this approach, but there’s a lot of execution risk ahead and no guarantee that partnerships will endure.

Uber has become a part of everyday life through its diverse range of offerings. The group’s growth profile, combined with improving margins and impressive cash generation, makes for a compelling proposition. That’s recognised by a forward earnings multiple in the high 20s.

We think that’s merited by its strong competitive position and superior service offering. But it also means there’s some pressure to deliver in the face of economic uncertainty.