In this edition, we will break with the traditional fundamentals investing approach to discover what other items can drive a stock price to great heights.
Momentum investing: A strategy grounded in a deceptively simple idea, stocks which have recently moved in one direction are likely to continue along that path, at least for a time. In the context of long positions, this means investors are willingly “buying high” with the expectation of “selling even higher.” The approach flies in the face of traditional fundamental / value investing logic, where buying low and waiting for reversion to the mean is the core philosophy. Momentum, instead, aims to ride the wave while it’s cresting.
The challenge with momentum investing, however, lies in its definition and practical execution. Momentum can refer to price changes over a 3-month period or a 12-month period, it can include earnings surprises, and relative strength. Most often it refers to simply how “hot” a name is on financial news and social media. As long as the stock is in the news it typically is heading upward.
Several equities today reflect classic momentum behavior. Consider Nvidia, which has become the poster child of the artificial intelligence boom. After surging over 200 percent in the past year, skeptics pointed to stretched valuations and extreme price-to-earnings (P/E) multiples. Yet, Nvidia’s momentum continued. Why? Because investors believe in the unfolding narrative and the demand pipeline for their AI products and infrastructure. The momentum was not just technical; it was powered by macro themes, earnings beats, and continued analyst upgrades. The stock’s trajectory illustrates a critical point: traditional metrics like P/E ratio often lose relevance when the momentum market is pricing in a transformation like AI, not just quarterly results. The belief is that Nvidia will grow revenues and earnings (the E) into the price (the P), sooner than later. I am a believer in this strategy. Nvidia also has great fundamentals, so it is an easy example to add to this momentum list.
This is perhaps the most misunderstood aspect of momentum investing. P/E ratios, by their nature, reflect the present or the immediate past. Momentum trading, however, looks forward—not in a speculative sense, but in a pattern-recognition sense. A high P/E may deter value investors, but for momentum traders, it can signal that a stock is breaking away from conventional expectations and entering a new phase of pricing power.
Tesla has similarly defied the gravity of traditional valuation. For years, critics warned that its earnings did not support its stock price, I for one have agreed. Yet momentum investors saw a different picture: an evolving company with accelerating global adoption, brand strength, and strategic flexibility. Momentum took over, and for long stretches, those who followed price trends and ignored old-school multiples profited handsomely. I am not a believer in the Tesla momentum, partly because of the perceived timeframe (for me) is too long to wait for big results, and the CEO Elon Musk, although brilliant, is too volatile in the press.
The current darling of the momentum trade is Palantir. This stock has a leader that is praised by a fan base akin to the golfer, Arnold Palmer (Arnie’s Army). There is a seemingly endless love affair for their unconventional, outspoken, philosophical genius, CEO, Alex Karp. Palantir’s area of expertise for the governments includes planning of drone offense measures, monitoring other countries, and identifying terrorist networks. With a P/ E Ratio currently at 263, they are not a traditional play. They have recently pivoted to include the business side in the enterprise world to improve operations and drive digital transformations for companies. That newer business grew to $1 billion very quickly, adding to the many billions the government side provides. I am a believer in this stock as well.
Photo is Not Arnold Palmer – Rather Alex Karp
That said, momentum investing is not without risk. Trends break. Sudden downgrades, regulatory changes, or unexpected earnings misses can bring momentum to a halt. However, in a market increasingly driven by sentiment, algorithmic trading, and fast-moving capital flows, ignoring momentum altogether is no longer prudent.
Momentum investing works best when investors are disciplined. It requires an exit strategy, emotional detachment, and a willingness to follow the data rather than instinct. For many investors, especially those leveraging tools like the Zacks Momentum Style Score, it offers a compelling way to participate in fast-moving sectors and market leaders.
In a landscape where fundamentals and technical collide, momentum is no longer a fringe approach. It is a legitimate and often highly profitable strategy, just one that requires a different lens.
Results are not typical. I teach methods that have made other traders’ money, but that does not guarantee you will make any money. Success in trading requires work and dedication. Past performance does not indicate future results. All trading carries risks.
