Tech Stocks to Watch as S&P 500 Soars Past 6,000
The U.S. stock market achieved a remarkable milestone in 2024, with the benchmark S&P 500 exceeding 6,000 points in November 2024. Technology stocks played a crucial role in this surge, although many are trading at valuations that may not be sustainable. However, a couple of well-established and fundamentally strong tech stocks, namely Advanced Micro Devices (NASDAQ: AMD) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), remain reasonably priced and hold significant growth potential. If you have an extra $500 not allocated for bills or emergencies, these technology giants could offer promising returns in the near future.
1. Advanced Micro Devices (AMD)
In the third quarter of fiscal 2024, Advanced Micro Devices (AMD) reported solid results, with revenue exceeding expectations and earnings aligning with analyst projections. Despite this, the stock saw a decline as Wall Street expressed concerns over AMD’s slower advancement in the AI sector compared to Nvidia, along with challenges in its gaming and embedded divisions.
Nonetheless, AMD’s data center division serves as a powerful growth driver. Revenue from this segment surged by 122% year over year, reaching $3.5 billion in the third quarter, which constituted nearly 52% of AMD’s total revenue. The operating income from this segment also tripled year over year to $1 billion.
Cloud service providers increasingly favor AMD’s EPYC processors for various services, including Microsoft’s Office 365 and Meta Platforms‘ Facebook. Meta has deployed over 1.5 million EPYC processors across its platforms, while Cloudflare has also chosen these processors for its next-gen servers.
Amd is also making headway in its graphics processing unit (GPU) sector. It serves as the primary competitive force against Nvidia in the data center market, holding about 5% to 10% of the space, where Nvidia commands 90% to 95%. The AI accelerator market is projected to grow by 60% annually, reaching $500 billion by 2028. If AMD can maintain its market share, the company stands to benefit significantly.
Due to high demand for Nvidia’s Hopper and Blackwell chips, some clients have turned to AMD’s cost-effective Instinct accelerators for AI tasks.
Key customers like Microsoft and Meta are expanding their use of AMD’s MI300X accelerators for various AI applications. Microsoft employs these chips for its multiple Copilot services powered by GPT-4, while Meta leverages them for live traffic on its open-source Llama 405B model. The recently introduced MI325X GPUs and forthcoming MI350-series GPUs (set for release in the latter half of 2025) could further enhance AMD’s penetration into the AI market.
Though trailing behind Nvidia in the AI domain, AMD’s financials remain impressive, showcasing a notable 31% year-over-year increase in earnings per share in Q3. Its growth-adjusted price-to-earnings (P/E) ratio, or price/earnings-to-growth (PEG) ratio, stands at just 0.15—notably below 1.
With significant AI-driven momentum and an attractive valuation, AMD appears to be a sound investment for 2025.
2. Alphabet’s Challenges and Opportunities
The year 2024 has been tough for Alphabet, the parent company of Google and YouTube. After recovering from a 52-week low of $127.90 in December 2023 to an all-time high of $191.75 in July 2024, the stock has experienced a downturn due to rising fears regarding potential antitrust violations.
In August 2024, a federal judge determined that Google’s behavior in the search market constituted monopolistic practices. The Department of Justice (DOJ) is now advocating for Alphabet to divest its Chrome browser and Android mobile operating system. Furthermore, the DOJ seeks to prohibit Alphabet from establishing exclusive agreements with third-party manufacturers like Apple and Samsung.
However, history suggests that a breakup is unlikely. Although the DOJ succeeded in a similar case against Microsoft in 1998, that ruling was eventually overturned. As Alphabet intends to appeal this decision, any final outcome could take several years. Additionally, the incoming administration led by President-elect Donald Trump may not prioritize breaking up Alphabet’s operations.
This prevailing skepticism over Alphabet’s stock may not be warranted, particularly given the company’s continued strong financial performance. Although Google has lost some ground to AI-driven chatbots and competing search engines like Microsoft’s Bing and Yandex, it still leads with a commanding 89.9% share of the global search engine market.
For Q3, Google Search and advertising revenue grew by 12% year over year, reaching $49.4 billion, which now represents 57% of Alphabet’s overall revenue.
Additionally, the introduction of the AI-powered Gemini platform shows promise in enhancing Alphabet’s search capabilities and supporting other internal operations across its product lines.
Moreover, Google Cloud was the sole significant cloud infrastructure entity to gain market share in Q3, with revenue climbing 35% year over year to $11.4 billion. This growth is fueled by increased demand for AI infrastructure and generative AI solutions within Alphabet’s ecosystem.
Despite the challenges, Alphabet’s stock trades at 22.7 times its trailing-12-month earnings, which is lower than its historical five-year average P/E ratio of 25.3.
Given its strengths in internet search and cloud computing, reasonable valuation, and low likelihood of a breakup, Alphabet presents an intriguing opportunity, especially for investors willing to accept higher risks.
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Randi Zuckerberg, a former market development director and spokeswoman for Facebook, and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a member of The Motley Fool’s board. Manali Pradhan holds no positions in any of the stocks mentioned. The Motley Fool has investments in and recommends Advanced Micro Devices, Alphabet, Apple, Cloudflare, Meta Platforms, Microsoft, and Nvidia. The Motley Fool calls for the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has established a disclosure policy.
The views and opinions presented here reflect those of the author and do not necessarily represent those of Nasdaq, Inc.
