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The 3 Widest Competitive Moats on Wall Street

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Competitive Moat: The Holy Grail of Longevity

In ancient times, a moat was a deep, wide ditch usually filled with water that encircled a castle fort or town. The primary purpose of a moat was to provide a defensive barrier against attackers. The depth and water in the moat made it difficult for enemies to approach the castle’s walls, providing the defenders with a significant advantage. The moat acted as a deterrent, slowing down or stopping the advance of enemy soldiers, siege engines, or other threats.

If you have ever watched the hit show “Shark Tank” on ABC, you probably understand what a moat is. On Shark Tank, entrepreneurs pitch their business to successful business people, who, if they like the idea, will invest their money for a percentage or all of the business. A main pushback by the “sharks” is the ability to duplicate a business. Even if a business is profitable in the near-term, if the competitive advantage is not sustainable over time, the company is vulnerable to imitation from the competition.

In modern-day business, the moat concept acts as a metaphor used to describe a company’s sustainable advantage. Like its ancient counterpart, a business moat refers to unique qualities or advantages that protect a company from competitors and external threats. Below are 3 stocks with the most signficant competitive moats currently:

Nvidia ((NVDA - Free Report) )

Chip-maker Nvidia has a foothold in the emerging artificial intelligence (AI) chip market and holds more than 70% market share in the space. Why is Nvidia so dominant? Nvidia was the first mover in the industry. More than a decade ago, iconic founder and CEO Jensen Huang recognized the potential of AI and shifted his company’s focus to making chips specifically for AI.

Nvidia’s competitive moat lies in the fact that the company began with a head start and is the fastest at iterating and creating new and improved chips. For competition, trying to surmount the head start that NVDA has is akin to a hamster trying to make progress in a hamster wheel. Beyond its best-in-class chips, NVDA offers a full suite of products and services, making it a one-stop-shop for AI. For this reason, many customers prefer to wait months for an NVDA chip rather than buying the competition. The results speak for themselves. Last quarter, NVDA earnings rocketed 429%.

Zacks Investment Research
Image Source: Zacks Investment Research

Tesla ((TSLA - Free Report) )

In the early 2000s, an electric vehicle enjoyable to drive with reasonable range was a pipe dream. That is until Elon Musk came along. The story is well known – Musk parlayed his winnings from the Paypal (PYPL) sale to create the world’s first successful EV. However, even still, Tesla remained a relatively niche product for consumers willing to spend upwards of $50,000 on an electric vehicle.

However, after years of working on the manufacturing process (and help from government subsidies), the average price of a Tesla is in line with the average cost of a new car.

 

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Image Source: Bloomberg

That’s great news for Tesla investors. Tesla is already enjoying catalysts such as sky-high gas prices and labor disputes at Stellantis ((STLA - Free Report) ), General Motors ((GM - Free Report) ), and Ford ((F - Free Report) ). Like Nvidia, Tesla’s competitors will have difficulty catching up to Tesla’s competitive moat.

Novo Nordisk ((NVO - Free Report) )

Novo Nordisk’s Ozempic is a medication used to treat type 2 diabetes when diet and exercise alone are insufficient. In other words, it’s the world’s first mainstream, effective fat-loss pill. Just how popular is Ozempic? Novo Nordisk’s market cap has soared to more than $400 billion, greater than the annual GDP of its home country, Denmark! Meanwhile, EPS is set to grow from $4 to ~$* by 2026 – massive for a company of this size.

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Image Source: Zacks Investment Research

Because of the intense approval process, the pharmaceutical industry is one of the most cut-throat industries. This morning, NVO’s weight loss drug showed it may treat kidney failure. Competitors like DaVita ((DVA - Free Report) ), Baxter International ((BAX - Free Report) ), and Medtronic ((MDT - Free Report) ) plunged.

Conclusion

Competitive moats symbolize a company’s sustainable advantage, protecting it from competitors and external threats. Three standout examples illustrate this principle vividly.

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