Rolls-Royce stock has outperformed Nvidia's in the last three years - and the gap is growing

By Jules Rimmer

Rolls-Royce chief executive delivers a beat and a raise with earnings announcement

Rolls Royce shares are flying high after a dramatic turnaround in the company's fortunes, overseen by chief executive officer Tufan Erginbilic since he took over stewardship of the company in 2023

One of the few stocks that can lay claim to outperforming Nvidia has done it again.

Rolls-Royce shares jumped 5% in London trade on Thursday, to extend their year-to-date return to just over 20%.

Since the nadir of the company's fortunes at the end of 2022, the stock's return of 1,383% has outpaced even the 1,239% return of Nvidia (NVDA) over the same time frame, and Rolls-Royce (UK:RR) now stands as the fifth-largest constituent of the FTSE 100 UK:UKX index by market capitalization.

Rolls-Royce's Tufan Erginbilgic

Rolls Royce's chief executive officer, Tufan Erginbilgic, who in 2023 took over the reins of the floundering power systems manufacturer and designer, delivered a beat and raise Thursday morning when releasing the results.

Operating profit of GBP3.46 billion ($4.6 billion) exceeded analyst estimates of around GBP3.27 billion but investors will be most enthused about the upgraded outlook for operating profit this year, from GBP3.75 billion at the midpoint to GBP5.05 billion at the midpoint, as well as free cash flow.

Moreover Erginbilgic revealed a massive increase in the share buyback program that saw the company purchase GBP1 billion of shares last year. Between now and 2028, Rolls-Royce plans to spend between GBP7 billion and GBP9 billion on their own stock.

The CEO was upbeat about the execution of his business plan, saying "we have navigated challenges from supply chains to tariffs" and also future prospects. Rolls-Royce has benefited from strong demand from increased European defense spending, from the demands for power generation from data centers and a healthy order book for its engines from aircraft manufacturers Boeing (BA) and Airbus (FR:AIR).

UBS analyst Ian Douglas-Pennant said in a write up of the earnings on Thursday that guidance and the buyback would be the focus of fund managers, while maintaining his buy recommendation and a GBP16.25 price target.

Brokerage house TD Cowen's analyst Gautam Khanna noted Rolls-Royce beat on all metrics, the results exceeded the "whisper number" and the buyback was "bigger than journalists had speculated." So even though he acknowledges the stock is a consensus long and it's at all-time highs, TD Cowen remains positive on the stock.

Such enthusiasm explains why Rolls-Royce, even on a valuation of 41 times earnings for 2026 is considered a buy by almost all analysts covering the stock, according to FactSet. Given the mean target price was GBP13.52 before today's release, below the current price, upgrades are most likely in the offing.

-Jules Rimmer

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