The bygone days aren’t precisely a crystal ball. However, on occasion, a look rearward in time can proffer us insights about what could take place in the future. This can be applied to investing by examining an index’s past performance and identifying patterns that could recur in the present or future. By doing this at this very moment, you’ll see history indicates that the Nasdaq Composite is forecasted to skyrocket in 2024.
Following the launch of the index in the early 1970s, after each bounce back from an annual decrease, it has achieved gains for a minimum of two consecutive years. Subsequently, after each yearly decline of 10% or more, the Nasdaq soared an average of 56% over those two years. Taking into account that the Nasdaq surged 43% the previous year, if the index adheres to its pattern from the past, it might be on course for another double-digit increase in 2024.
How can you, as an investor, take advantage of a surging Nasdaq? By investing in companies that contribute the most to the index’s movement — like the top 10 most heavily weighted in the index — and then narrowing that down to companies offering promising growth opportunities presently. And this leads me to two companies poised to lead in artificial intelligence (AI), a market projected to exceed $1.3 trillion by 2030. Let’s explore two groundbreaking AI stocks to purchase ahead of the Nasdaq’s impending surge.
Nvidia (NVDA 4.17%) set out by conquering the gaming and graphics markets thanks to its graphics processing units (GPU) — driving earnings gains over time. However, in recent years, the rest of the globe discovered the power of GPUs, and Nvidia’s sales and share price have taken off.
These potent chips handle multiple tasks concurrently, by dividing the workload among numerous processors, and as a result, they significantly speed up processes. And this makes Nvidia’s GPUs an essential AI tool, serving as the engine for the “deep learning” involved in generative AI. Consequently, industries from healthcare to automotive are turning to Nvidia chips to power their AI programs.
In the most recent quarter, Nvidia’s revenue soared to a record of $18 billion, led by record data center revenue — the business that benefits from the burgeoning AI market. Data center revenue surged 279% to more than $14 billion. Operating income of $10 billion well surpassed operating expenses, another positive aspect — and simultaneously, increasing research and development spending demonstrates Nvidia is investing to stay ahead of the competition.
The key metrics of free cash flow and return on invested capital have ascended over the past year, proof Nvidia is deploying its cash wisely and reaping the rewards from those investments.
At present, Nvidia commands more than 80% of the GPU market, and although competitors have multiplied, I’m confident this frontrunner will continue to dominate. That’s because the company has the first-mover advantage and a top product, and devout enthusiasts of Nvidia’s GPU performance may not be enticed to switch.
A trend in the central processing unit (CPU) market illustrates this. Advanced Micro Devices (AMD) has expanded its share in the CPU market for laptops to 22% over a decade, as per Statista — but, during that period, it hasn’t been able to usurp leader Intel, which holds 69% of the market. This means AMD, also active in the GPU market, could increase its market share over time — but without necessarily disturbing Nvidia’s dominance.
Indeed, Nvidia shares have surged in recent times, but the company’s earnings growth, market leadership, and critical role in AI means there’s plenty of room for profits. And a growth-favorable stock market environment also should benefit Nvidia, making it a top stock to acquire before the Nasdaq takes off.
Alphabet (GOOG 2.06%) (GOOGL 2.02%) is integral to our everyday existence because of its widely used search engine, Google. The company generates the majority of its revenue by selling ads to those who aspire to capture our attention as we seek various types of information online. Advertisers flock to Alphabet because Google persistently dominates the search market. It has consistently held more than 90% share, and for two significant reasons, I wouldn’t anticipate that to change.
Primarily, it’s arduous to alter a routine — and that means most of us are apt to continue “Googling” our inquiries rather than experiment with an alternative search engine. Thus, Alphabet has a moat, or competitive advantage, that could maintain its lead.
Secondly, Alphabet has made substantial investments in AI to enhance its search capabilities continually — a development that can please us, the users, and ensure our repeat visits. Consequently, advertisers will also keep returning to Alphabet.
The company recently introduced a significant advancement along its AI journey by unveiling Gemini, its most colossal and high-performing AI model till date. Gemini operates across multiple information types, from text to code, image, and video. The three different-sized Gemini models handle various tasks, including answering questions on complex subjects and producing code in popular programming languages.
Gemini has the potential to improve the Google Search experience and search results in the future, ensuring Alphabet’s continued dominance. Alphabet is also integrating Gemini into its other products — such as its Pixel smartphone — and extending Gemini to its cloud customers. Consequently, this AI tool could be a game-changer for Alphabet as it bolsters the performance of the company’s products and services and allows cloud clients to benefit from the technology.
Furthermore, Alphabet has consistently delivered earnings growth over time. The company managed to maintain quarterly revenue increases last year even as advertisers curtailed their spending. In the most recent quarter, Alphabet reported an 11% increase in revenue and gains in operating income and earnings per share.
All of this indicates that if the Nasdaq surges in 2024, AI juggernaut Alphabet could be among the stocks at the forefront.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.