After an astonishing rally in 2023, the Nasdaq Composite is back in action, showcasing remarkable performance in the tech-heavy index. Notably, the index has recovered from its minor setback in January and has surged 8.3% year-to-date, outperforming both the S&P 500 and the Dow. With the fifth consecutive positive week, the Nasdaq Composite continues to exhibit its resilience and strength in the market.
Explosion of Generative AI
The tech rally in 2023 was predominantly ignited by the surge in AI, particularly generative AI, which garnered significant attention and speculation. Nonetheless, the robust fundamentals of the U.S. economy, coupled with blockbuster earnings from NVIDIA, the leading global manufacturer of generative AI chipsets, have infused the market with heightened expectations of an impending strong growth phase for AI technology.
Furthermore, the optimistic projections of Taiwanese chipmaker Taiwan Semiconductor Manufacturing Co Ltd., of more than 20% revenue growth in 2024, on the back of burgeoning demand for high-end chips used in AI applications, underscore the untapped potential of the AI market in the global arena.
Smart Devices Aiding Computing Demand
The surge in demand for smart devices with advanced computing and learning capabilities has contributed to the accelerated growth of the semiconductor industry. Projections from the World Semiconductor Trade Statistics (“WSTS”) and estimates from technology research and advisory firm IDC emphasize the strong growth outlook for semiconductor sales in 2024, driven by the burgeoning demand from AI servers and end-point device manufacturers.
Moreover, Grand View Research’s anticipation of an 820% surge in annual spending across AI hardware, software, and services by 2030 reinforces the substantial growth prospects for the semiconductor industry.
Future Catalyst
The recent announcement by the Biden administration to invest $5 billion in a public-private consortium for advanced computer chip R&D activities, builds upon the CHIPS and Science Act signed in 2020, which earmarked $50 billion to support computer chip manufacturers and address component shortages across industries. This proactive approach is aimed at reclaiming the United States’ dwindling share in global semiconductor and microelectronic production.
The establishment of the National Semiconductor Technology Center (“NSTC”), funded through the act, and the subsequent allocation of $5 billion further underscores the government’s commitment to enhancing R&D efforts in the semiconductor industry.
Considering the explosive potential of AI and the increased demand for advanced computing technologies, it is essential for investors to identify potential winners within the tech behemoth market. We have compiled a list of top picks in the Nasdaq Composite, encompassing companies with strong exposure to AI and robust growth potential for 2024, backed by positive earnings estimate revisions over the last 30 days.
The performance chart below showcases the price movement of our selected top picks over the past three months.
Image Source: Zacks Investment Research
Amazon.com Inc. AMZN leads the pack, benefiting from strong Prime momentum, ultrafast delivery services, and a robust content portfolio. The company’s expanding AWS services portfolio and global presence continue to yield promising results, with an expected revenue and earnings growth rate of 11.4% and 39%, respectively, for the current year.
Meta Platforms Inc. META has leveraged steady user growth across all regions, particularly in Asia Pacific, to drive its overall performance. The company’s innovative portfolio, including Reels, Threads, and mixed reality devices, is poised to fuel growth, with an expected revenue and earnings growth rate of 17.4% and 31.9%, respectively, for the current year.
NVIDIA Corp. NVDA, propelled by the strong growth of AI and high-performance computing, is witnessing a surge in its Compute & Networking revenues. The company’s formidable presence in the datacenter end-market and strategic collaborations is anticipated to underpin robust revenue growth through fiscal 2024-2026.
