Companies with durable competitive advantages, or economic moats, have been driving market gains in 2024.
In the year to date, wide-moat stocks, as measured by the Morningstar Wide Moat Composite Index, are up 28.92%, outperforming the broader Morningstar US Market Index, which gained 26.55%. Narrow-moat stocks are up 25.48%, while no-moat stocks lag with a 14.43% gain.
Companies with wide moats are expected to maintain their competitive advantages for more than 20 years, while those with narrow moats should be able to do so for 10-20 years, according to Morningstar analysts.
The gap between wide-moat and no-moat stocks in 2024—14.49%—marks the second-largest such gap since 2011. The largest gap came last year, when wide-moat stocks beat no-moat stocks by 18.61 percentage points. Narrow-moat stocks have outperformed no-moat stocks by 11.05 percentage points so far this year—the largest gap in a single calendar year across the 21-year track record of the moat indexes.
Although 2024 has shown a larger margin of moat stock outperformance than usual, wide-moat stocks have outperformed the overall market in the trailing one-year, three-year, five-year, and 10-year periods. Narrow-moat stocks performed roughly in line with the market, while no-moat stocks lagged the market by at least 3% in every period.
Which Moat Stocks are Leading the Rally?
Looking at the holdings of the Wide Moat Composite Index, the leading contributors in the year to date are all names tied to the artificial intelligence boom.
- Nvidia NVDA
- Apple AAPL
- Meta Platforms META
- Amazon AMZN
- Microsoft MSFT
Nvidia leads with a 186.70% return in the year to date—nearly 80 percentage points better than the next-best performer, Fair Isaac FICO. Nvidia contributed 8.72 of the 28.92 percentage points gained by the Wide Moat Index this year. The next-largest contributor, Apple, added 2.14 percentage points—only a quarter of Nvidia’s contribution. Meta added 1.82 points, Amazon contributed 1.69, and Microsoft added 1.33. These five stocks are also the top contributors to the US Market Index’s overall gain.
For the Narrow Moat Index, the leading contributors are:
- Tesla TSLA
- Netflix NFLX
- Oracle ORCL
- Exxon Mobil XOM
- Palantir Technologies PLTR
Tesla holds the largest weight in the Narrow Moat Index—4.52%—and contributed 2.67 of the 25.48 percentage points gained by the index this year. Netflix contributed 1.49 percentage points, Oracle contributed 1.19 points, and Exxon Mobil added 0.85. Palantir, which has returned 274.78% this year, leading all stocks in the index, added 0.79 percentage points to its gain.
Here’s what Morningstar analysts had to say about these stocks after their third-quarter earnings reports.
Nvidia
- Morningstar Rating: 3 stars
- Industry: Semiconductors
“Nvidia once again reported outstanding results for its fiscal third quarter and provided investors with a fiscal fourth-quarter forecast that exceeded our expectations. We raise our fair value estimate to $130 per share from $105, as we’re more optimistic about Nvidia’s growth over the next two calendar years, as the supply of the firm’s products is improving faster than we expected. We’re also pleased with management’s commentary around its Blackwell graphics processor’s gross margins once the products are fully ramped, which boosts our confidence that gross margins can remain in the mid-70% range in the long run. Shares appear modestly overvalued to us, as growth will inevitably slow in the long run, and we still think Nvidia’s largest customers have plenty of incentive to reduce their reliance on Nvidia over time—whether it be with in-house chips or more efficient capital expenditure. We maintain our Very High Morningstar Uncertainty Rating for wide-moat Nvidia, as the artificial intelligence landscape is both secretive and rapidly evolving, while Nvidia’s revenue carries high operating margins so that any upside (or downside) in revenue has an outsize impact on cash flow.”
—Brian Colello, equity strategist
Apple
- Morningstar Rating: 2 stars
- Industry: Consumer Electronics
“We raise our fair value estimate for wide-moat Apple to $200 from $185 as we raise our longer-term growth expectations. We’ve also revised down our short-term forecast for iPhone revenue to reflect less of an impact from artificial intelligence on unit sales over the next two years. We believe Apple Intelligence will spur a return to mid-single-digit growth for iPhone revenue, but we believe the impact will be drawn out over the next two fiscal years. In the longer term, we expect iPhone unit sales and Apple’s services segment to drive solid growth and for margin expansion to help drive double-digit earnings growth over the next five years.”
—William Kerwin, equity analyst
Meta Platforms
- Morningstar Rating: 3 stars
- Industry: Internet Content & Information
“Meta reported strong third-quarter financial results, with revenue growing 19% year over year to $41 billion. Profitability also improved, with operating margins expanding 300 basis points from a year ago to 43%. Capital expenditures remain elevated due to heavy artificial intelligence investment.
“Meta’s advertising juggernaut produced another solid quarter, with ad impressions and average price per ad both up year over year. Management called out its investments in generative AI, or GenAI, as also value-accretive by improving user engagement and monetization. Ad impressions and average price per ad increased 7% and 11% year over year, respectively. The firm saw broad-based strength, with ad impressions and prices growing across geographies. More than 500 million people are using Meta’s chat assistant within its applications. We were encouraged to see management call out improvements in user engagement stemming from increased usage of the chat assistant.”
—Malik Ahmed Khan, equity analyst
Amazon
- Morningstar Rating: 3 stars
- Industry: Internet Retail
“We are raising our fair value estimate for wide-moat Amazon to $200 per share from $195 after the company reported solid third-quarter results. The firm’s fourth-quarter outlook was generally aligned with our estimates. Changes to our model are minor but center around continued near-term profitability improvements. Overall results are pretty consistent with recent quarters. Amazon continues to gain efficiencies throughout the network, which helps lower costs and improve delivery speeds and ultimately drives increased purchases by Prime members. We now see shares as fairly valued, after a strong run since early August.”
—Dan Romanoff, senior equity analyst
Microsoft
- Morningstar Rating: 4 stars
- Industry: Software – Infrastructure
“We are maintaining our fair value estimate for wide-moat Microsoft at $490 per share after the firm reported good results but offered guidance that is mixed versus our expectations. The outlook generally offsets quarterly strength, which holds our fair value in check. Performance looks good from any angle, with impressive artificial intelligence demand and monetization. With shares down slightly after hours following a recent pullback, we see the stock as attractive, and we think accelerating Azure revenue will propel the stock upward over the next year.
“We see results reinforcing our long-term thesis, which centers on the proliferation of hybrid cloud environments and Azure. The firm continues to use its on-premises dominance to allow clients to move to the cloud at their own pace. We center our growth assumptions around Azure, Microsoft 365 E5 migration, and traction with the Power Platform for long-term value creation. AI is also quickly supplementing growth, which we see as another secular driver.”
—Dan Romanoff
Tesla
- Morningstar Rating: 2 stars
- Industry: Auto Manufacturers
“Tesla delivered third-quarter earnings above consensus estimates. During the first half of the year, Tesla’s profit margins fell to multiyear low levels, largely due to a decline in the automotive segment. In the third quarter, Tesla’s automotive business generated 160 basis points of gross profit margin expansion to 20.1% driven by deliveries growth; lower cost per vehicle—including lower raw materials costs; and higher autonomous driving software revenue. In our view, the results signal that the first half of 2024 was likely the bottom for Tesla’s automotive gross profits, as we expect fourth-quarter results will also exceed 20%.
“We’re raising our fair value estimate to $210 per share from $200 following the strong results. The increase is due to our forecast for slightly higher near-term deliveries and higher 2024 gross profit margins in the automotive segment. We’ve also raised our outlook for the energy generation and storage segment due to the strong demand for utility-scale batteries, known as the Megapack.”
—Seth Goldstein, equity strategist
Netflix
- Morningstar Rating: 1 star
- Industry: Entertainment
“Netflix’s very strong third-quarter sales growth was largely assured, considering the huge increase in subscribers over the past few quarters. Still, we were impressed at how much further margins expanded beyond the huge rise already this year. Netflix also offered an initial sales and margin outlook for 2025 that portends less of a deceleration than we anticipated following a blockbuster 2024. The third quarter showed the slowdown in subscriber growth that we’ve been expecting, but Netflix has other areas of opportunity to continue boosting its financial performance.”
—Matthew Dolgin, senior equity analyst
Oracle
- Morningstar Rating: 1 star
- Industry: Software – Infrastructure
“We are significantly raising our fair value estimate for narrow-moat Oracle to $205 per share, from $108 previously, upon transferring coverage from another analyst. Our new model attempts to adhere more closely to the company’s five-year plan, which calls for revenue of at least $104 billion and 45% operating margin in fiscal 2029. We still come up meaningfully below the $104 billion revenue target, which we see more as aspirational, but 45% operating margin is not unreasonable, in our view. Despite our opinion of this goal, it shows an increasing confidence on the part of management. Given $99 billion and 52% year-over-year growth in remaining performance obligations, we see revenue acceleration as inevitable. Accordingly, our growth and margin profile are both higher now than under the prior coverage. While we do not think the company’s challenges have evaporated, we think they are more manageable and that Oracle is in much better positions competitively and operationally than it has been in the last five years.”
—Dan Romanoff
ExxonMobil
- Morningstar Rating: 3 stars
- Industry: Oil & Gas Integrated
“Exxon’s third-quarter earnings of $8.6 billion surpassed market expectations thanks to the inclusion of Pioneer volumes, which drove liquids volumes to a decades high of 3.2 mmbd, and progress on delivery of structural cost savings totaling $1.6 billion year to date.
“Exxon’s compelling investment case rests its earnings growth outlook through 2027, which is a function of upstream growth, margin expansion, and cost reductions. Production was 4.6 mmboed during the quarter, on track for its 2027 target of over 5.0 mmboed, while the normalized per barrel margin expanded to $10/boe year to date from $9/boe in 2023. Including progress year to date, structural cost savings have reached $11.3 billion since 2019 and are on track to reach the $15 billion 2027 target.”
—Allen Good, director of equity research
Palantir Technologies
- Morningstar Rating: 1 star
- Industry: Software – Infrastructure
“Palantir reported robust third-quarter financial results, with the firm’s top line growing 30% year over year to $726 million and operating margins expanding to 15.6% from 7.2% a year ago. US commercial customers drove the firm’s top line, with sales from the segment growing 54% year over year.
“With another better-than-expected quarter in the books, we are raising our fair value estimate for narrow-moat Palantir to $21 per share from $19. While we view the stock as materially overvalued, we remain optimistic about the firm’s growth and margin expansion opportunity in the coming years. Palantir is by far the most expensive software company under our coverage, with an enterprise value 31 times our 2025 sales estimate. We view the long-term growth implied in Palantir’s current valuation as unrealistic. With the firm’s shares priced for perfection, we’d remind investors that any bump in the road—such as sales execution challenges or weaker-than-expected top-line growth or guidance—could materially affect the stock’s valuation.”
—Malik Ahmed Khan
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
