The Nasdaq: A Standout Performer Amid Market Growth
2024 Outlook: Will the Nasdaq Maintain Its Momentum?
Last year was strong for the financial markets, but one index truly excelled: the Nasdaq. Rising 28%, it outperformed the S&P 500, which increased 23%, and the Dow Jones Industrial Average, which climbed 12%. The Nasdaq’s growth was largely driven by investors flocking to technology companies, especially those involved with artificial intelligence (AI).
The AI Boom: A Game Changer for Industries
The current $200 billion AI market is expected to exceed $1 trillion by the end of the decade. This anticipated growth has attracted many investors looking to capitalize on the early stages of this transformative technology, which has the potential to optimize operations across various industries, reduce costs, and enhance profitability. Notably, improved earnings can lead to better stock performance.
As 2025 approaches, one question emerges: Can the Nasdaq sustain its remarkable gains? History suggests it can. Since 1990, after periods of growth, the Nasdaq has typically risen for three consecutive years or more in five out of six instances.
While market unpredictability exists, historical trends offer valuable insights. With that said, let’s delve into some top AI stock picks before the Nasdaq experiences another surge.
Image source: Getty Images.
1. Meta Platforms
Many link Meta Platforms (NASDAQ: META) predominantly with social media, as it owns popular platforms like Facebook, Messenger, Instagram, and WhatsApp, collectively boasting over 3.2 billion users daily.
However, Meta is also emerging as a significant player in AI, working to develop its own large language model (LLM) for applications like the Meta AI assistant. The company prioritized AI as its primary investment area last year and announced plans for further investments. Its goal is to create AI solutions that help users manage their tasks and projects more effectively.
This strategic focus could position Meta as a leader in AI, potentially driving higher revenue. Currently, the company earns a substantial portion of its income through advertising. With enhanced user engagement through AI assistants, advertisers may be more inclined to invest in Meta’s platforms.
Given these factors, Meta shares are trading at only 24 times forward earnings estimates, even following a 65% increase last year, making them an attractive AI investment before the Nasdaq potentially rises further.
2. Alphabet
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) isn’t usually synonymous with AI, as most recognize it for Google Search, an essential tool for many.
Yet, Alphabet excels in AI through two main avenues. First, its LLM Gemini enhances search capabilities, improving user experience and advertising for businesses. Additionally, Alphabet offers AI tools via Google Cloud, which has been growing rapidly, achieving over $10 billion in revenue and $1 billion in operating income in recent quarters.
However, the company faces obstacles, including an antitrust lawsuit from the Justice Department claiming that Google has stifled competition in search. Alphabet intends to appeal the ruling and might successfully navigate potential sanctions, given its strong market position.
Currently, Alphabet’s stock trades at 21 times forward earnings estimates, which is reasonable considering its consistent growth and leadership in the AI space.
3. Nvidia
No discussion of AI stocks would be complete without mentioning Nvidia (NASDAQ: NVDA). After a staggering 171% increase last year, it may appear pricey at 45 times forward earnings estimates. Nevertheless, its crucial role in the AI sector justifies the investment.
Nvidia is not only the leading AI chip manufacturer but has also diversified into various products and services, even creating industry-specific platforms for healthcare and automotive sectors.
Its chip dominance has fueled consistent growth, leading to record revenues soaring past $35 billion in recent quarters. The upcoming wave of AI advancement, particularly within software, stands to elevate Nvidia’s revenue even further as it offers enterprise software and tools for clients aiming to develop their own AI solutions.
Nvidia is a clear frontrunner in the early stages of AI and could continue to thrive, making it a key stock to consider before the Nasdaq experiences another upswing in 2025.
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Randi Zuckerberg, who previously served as the director of market development for Facebook and is the sister of Mark Zuckerberg, currently sits on The Motley Fool’s board. Suzanne Frey from Alphabet is also a board member. Adria Cimino does not own any of the stocks discussed. The Motley Fool holds investments in and recommends Alphabet, Meta Platforms, and Nvidia. For more information, check their disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
