Investors Eye Growth Potential in S&P 500 Stocks
The S&P 500 outperformed most individual stocks, according to a J.P. Morgan study. Between 1980 and 2020, two-thirds of stocks in the Russell 3000 index underperformed the S&P 500, and 40% recorded negative returns.
One reason for the S&P 500’s success is its market capitalization structure, which allows high-performing companies to drive returns.
Top Growth Opportunities in the S&P 500
Several S&P 500 companies are showing significant growth potential, particularly in the AI sector.
1. Palantir Technologies
After joining the S&P 500 last year, Palantir Technologies (NASDAQ: PLTR) is recognized for its strong growth prospects. The company experienced accelerating revenue growth, gaining traction in both U.S. government and commercial sectors with its Artificial Intelligence Platform (AIP).
Palantir focuses on workflow and application software for AI, creating platforms that integrate data from various sources. Their new AI agents assist in decision-making and action automation.
Palantir’s solutions are applicable across diverse industries, increasing its growth potential. However, its high valuation and potential reductions in government spending could impact its performance.
2. Broadcom
Broadcom (NASDAQ: AVGO) is transitioning from a traditional chip and networking company to one with substantial growth opportunities. The firm’s software business is evolving after acquiring VMware in late 2023, enhancing its subscription-based services.
Broadcom aims to maximize its VMware Cloud Foundation (VCF) platform to attract enterprise customers seeking hybrid AI solutions.
On the hardware front, Broadcom manufactures critical components for networking and ASICs. Its custom AI chips are particularly promising, outperforming standard GPUs in specific applications. With a projected $60 billion to $90 billion market opportunity by fiscal year 2027, the company aims to expand its customer base beyond initial clients like Alphabet and Apple.
3. Advanced Micro Devices
Although trailing Nvidia, Advanced Micro Devices (NASDAQ: AMD) has carved out a niche in the data center market with its CPUs, which serve as server brain units. The potential in AI inference is significant, and AMD is gaining traction as more companies utilize its GPUs for processing AI tasks.
AMD’s GPUs are more affordable than Nvidia’s, positioning it well for capturing market share in the growing AI inference segment, which is expected to surpass the AI training market in size.
Risks include a slowdown in AI infrastructure spending and ongoing competition with Nvidia.
Investment Considerations for Palantir Technologies
Potential investors should weigh Palantir’s prospects carefully against other investment opportunities.
Analysts have identified ten high-potential stocks, with Palantir Technologies not being one of them. Historical investments in similar stocks, like Netflix and Nvidia, have yielded significant returns over time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler holds positions in Alphabet. The Motley Fool holds interests in AMD, Alphabet, Apple, Nvidia, and Palantir Technologies, and recommends Broadcom.
The views expressed here are those of the author and may not reflect those of Nasdaq, Inc.
