Invest in These 3 AI Stocks Before They Take Off

Growth investors experienced a challenging period in 2022 as the Nasdaq Composite plummeted more than 35% at its lowest point. That seems like a distant memory now after the technology-heavy index surged back in 2023 with a 43% increase. It is now just 2.5% away from reaching its all-time high.

Historical data suggests that investors could expect more favorable times in 2024. The index has tended to perform well following similar substantial downturns in the past.

The enthusiasm for advancements in artificial intelligence (AI) helped fuel the market’s rally. Some leading AI stocks still have the potential for growth and reasonable valuations to sustain their strong momentum.

Here are three AI stocks to consider acquiring for continued gains.

1. Nvidia

The momentum in the stock market has been carried by “The Magnificent Seven,” a few megacap technology stocks leading the charge into AI with their dominant business plans and substantial resources.

One of these companies is chip manufacturer Nvidia (NASDAQ: NVDA), performing impressively on Wall Street after skyrocketing by 222% over the last 12 months. Normally, investors wouldn’t buy a stock after such a surge, but Nvidia’s rapid growth from AI chip demand could be unparalleled.

How often does a company, already generating billions in revenue, increase to a triple-digit growth rate? That is precisely what Nvidia accomplished.

What’s more, it appears that the momentum could continue. The company leads in the AI chip market, which might expand to over $400 billion in the coming years.

Nvidia’s H100 and H200 chips are not only the top hardware for constructing AI computers, but the company also aims to target businesses that could design and make their own AI chips.

Analysts predict that the company will grow earnings by over 42% annually, making a forward price-to-earnings (P/E) ratio of 35 very reasonable for the stock. While investors who have already experienced significant gains could take profits, Nvidia’s prospects make any decline a tremendous long-term buying opportunity.

The best approach could be to gradually acquire shares since it’s difficult to anticipate how high a soaring stock with such robust fundamentals can rise before it dips.

2. Super Micro Computer

Like Nvidia, Super Micro Computer (NASDAQ: SMCI) is experiencing a surge in growth that could be difficult for investors to comprehend due to the swift rise in its stock price.

The stock has gained 751% in the past year alone. However, as we will see shortly, the unprecedented tailwinds of AI justify these substantial gains. Super Micro Computer sells modular server systems, which enables customers to purchase advanced servers without having to design and build them.

The company has been in operation since 1993, and the transition to cloud computing — and now AI — is propelling growth to new heights. It recently reported second-quarter fiscal 2024 earnings. Revenue surged 103% year over year to $3.66 billion, and 73% compared to the previous quarter.

This represents exponential growth for a multibillion-dollar corporation, and management forecasts over 200% year-over-year growth in the third quarter.

When revenue is increasing this rapidly, it shouldn’t be surprising to see the stock follow suit. Analysts have high expectations for Super Micro Computer, projecting that earnings will grow at an average annual rate of 37%. With a forward P/E of just 34, this soaring stock could be a potential bargain if it maintains this level of performance.

3. Meta Platforms

Another of the Magnificent Seven stocks to round out this list. Social media company Meta Platforms (NASDAQ: META) has surged 163% over the past year.

AI is also a significant aspect of its operations, but Meta’s story is more about redemption following struggles with advertising and excessive spending, which led to Wall Street losing interest in 2022. Since then, Meta has experienced a renaissance, and cost-cutting measures have re-established it as a thriving business.

Meta, which owns social media platforms Facebook, Instagram, and WhatsApp, continues to add users. It increased its total audience to 3.98 billion monthly active users in the fourth quarter, a 6% rise over 2022.

Revenue was 25% higher year over year, and the company’s management issued its first-ever dividend, an indication of its confidence in being able to share more profits with investors while investing for long-term growth.

Given that Meta was at such a low point in 2022, the remarkable surge in its stock price still hasn’t made shares prohibitively expensive. It trades at a forward P/E of 23, which is reasonable for an outstanding business that analysts believe will grow earnings by almost 20% annually over time. Meta Platforms stock appears to be a wise choice for long-term investment in 2024.

Should you invest $1,000 in Nvidia right now?

Before purchasing Nvidia shares, take into account:

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Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, serves as a member of The Motley Fool’s board of directors. Justin Pope does not hold a position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool advocates for Super Micro Computer. The Motley Fool has a disclosure policy.

History Says the Nasdaq Will Surge in 2024: 3 Artificial Intelligence (AI) Stocks to Buy Before It Does was originally published by The Motley Fool

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