The Nasdaq Composite has staged an impressive rebound, soaring by 50% since its lackluster performance in 2022, akin to a phoenix rising from the ashes. The burning question on investors’ minds now revolves around the possibility of further highs in the offing.
However, a dive into historical data paints an optimistic picture. Dating back to its inception in 1972, the Nasdaq has shown an average annual increase of 19% post-market recoveries. The variable of inflation looms large as a potential disruptor; nevertheless, the annals of history hint at a profitable trajectory in 2024 for discerning investors.
The recent surge in the market is widely attributed to the strides made in artificial intelligence (AI), a force that is anticipated to steer the market to even greater heights in the year ahead. Projections vary, but according to the McKinsey Global Institute, generative AI is forecasted to inject a staggering $2.6 trillion to $4.4 trillion into the global economy per annum in the imminent future. Firms leading the AI revolution are set to bask in an era of prosperity.
Here, I outline my top five AI growth stocks to consider before the Nasdaq embarks on a fresh ascent.
Image source: Getty Images.
Nvidia: Leading the Charge in AI
A discussion on the potential of AI is incomplete without acknowledging Nvidia (NASDAQ: NVDA). Renowned for its graphics processing units (GPUs), Nvidia is the premium choice across various AI applications, from machine learning to cloud computing and data centers. The red-hot demand has outstripped supply, fostering a chip scarcity anticipated to persist until 2025. Despite intense competition, Nvidia’s profound expertise and substantial investment in research and development have kept rivals at bay.
In its fiscal 2024, Nvidia reported revenue and earnings-per-share (EPS) surges of 126% and 586%, respectively. While sustaining triple-digit growth indefinitely is unrealistic, robust demand is foreseen to endure. Even though the forward earnings multiple of 34 may seem steep, Nvidia’s stellar growth justifies its premium valuation.
Microsoft: Leveraging AI Advancements
Microsoft (NASDAQ: MSFT) promptly seized the generative AI opportunity, culminating in a $13 billion investment in ChatGPT creator OpenAI and the launch of the Copilot suite of AI assistants. Seamlessly integrated into Microsoft’s core offerings, Copilot enhances efficiency by automating laborious tasks, resonating well with users. Initial feedback revealed that once users experienced Copilot, 77% found relinquishing it unthinkable.
Continual iterations are underway, with analysts speculating that Copilot could yield about $100 billion in supplementary revenue annually. Microsoft’s Azure Cloud is making strides in market penetration, with AI contributing to its accelerating growth. Priced at 35 times forward earnings, Microsoft offers a justifiable premium due to its growth potential.
Palantir Technologies: Pioneering the AI Realm
Palantir Technologies (NYSE: PLTR) boasts over two decades of expertise in supplying AI-driven data analytics to governments and corporations alike. Diving headfirst into the AI surge last year, the company unveiled its Artificial Intelligence Platform (AIP), integrating generative AI with its existing robust suite.
Palantir’s AIP “boot camps” have been inundated with demand, surpassing intended targets in record time. The U.S. commercial revenue surged by 70% year-on-year and 12% sequentially, marking its fastest-growing segment with abundant growth prospects on the horizon. With a forward price/earnings-to-growth (PEG) ratio under 1, Palantir stands as a bargain for value investors.
Super Micro Computer: Powering the AI Revolution
Amidst the AI paradigm shift, Super Micro Computer (NASDAQ: SMCI) plays a pivotal role in providing servers tailored for AI processing, collaborating closely with industry giants like Nvidia, Advanced Micro Devices, and Intel. These strategic alliances ensure that Supermicro servers are finely tuned to meet the demands of AI workloads while emphasizing energy efficiency.
The company has been securing market share from competitors, with revenue catapulting by 103% year-on-year and adjusted EPS soaring by 71% in the second quarter of fiscal 2024 (ending Dec. 31). Despite its remarkable growth trajectory, Super Micro remains a bargain, trading at less than 3 times forward sales, a compelling investment proposition amid the AI renaissance.
Alphabet: Harnessing AI for Growth
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) boasts a rich history of leveraging AI to amplify its search and digital advertising ventures. Swiftly incorporating generative AI functionality into core Google and Android products, Alphabet is poised to provide cutting-edge AI models via Google Cloud, the world’s third-largest cloud infrastructure provider.
The emergence of advanced AI technologies is anticipated to drive recovery in Google’s digital advertising segment. Priced at under 27 times earnings, Alphabet’s stock presents an enticing opportunity for growth investors.
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Suzanne Frey, a board member at Alphabet, sits on The Motley Fool’s board of directors. Danny Vena holds stakes in Alphabet, Microsoft, Nvidia, Palantir Technologies, and Super Micro Computer. The Motley Fool has positions in and endorses Advanced Micro Devices, Alphabet, Microsoft, Nvidia, and Palantir Technologies. Intel is also recommended by The Motley Fool. Moreover, the following options are advised: long calls on Intel expiring January 2025, long calls on Microsoft expiring January 2026, short calls on Microsoft expiring January 2026, and short calls on Intel expiring May 2024. The Motley Fool operates with a disclosure policy.
The thoughts and opinions articulated herein represent the author’s views and do not necessarily mirror those of Nasdaq, Inc.
