the Standard & Poor’s 500 He finished 2023 in amazing fashion. The index has made nine consecutive weekly increases, its longest winning streak since 2004. Overall, the S&P 500 rose 24% last year as market sentiment improved amid signs of economic resilience.
Four sectors were mainly responsible for pushing the market higher. The technology sector rose 56% and the communications services sector rose 53%, supported in many cases by excitement surrounding artificial intelligence. Consumer estimates rose 40% as slowing inflation led to accelerating spending. Finally, industrial industries rose by 18% as business investments in structures and equipment rebounded.
Not surprisingly, the 10 best-performing stocks in the S&P 500 in 2023 came from those four sectors, as detailed below:
- Nvidia: 239% – Technology
- Meta platforms: 194% – Communications services
- Royal Caribbean: 162% – consumer discretionary
- First Source Builders: 157% – Industrialists
- Uber: 149% – Industrialists
- Carnival: 133% – consumer discretionary
- Advanced micro devices: 128% – Technology
- Poltigroup: 127% – consumer discretionary
- Palo Alto Networks: 111% – Technology
- Tesla: 102% – consumer estimate
Nine of the above stocks have a consensus Buy rating among Wall Street analysts (Tesla is the only exception with a consensus rating). But analysts believe Nvidia (NVDA 2.29%) It is the group’s top single pick in 2024. The stock has a 12-month average price target of $650 per share, which implies an upside of 37% from its share price as of this writing.
Carnival is currently ranked second with an average 12-month price target of $21.50 per share, implying an upside of 32%. Meta Platforms ranks third with an average 12-month price target of $385 per share, implying an upside of 12%.
Here’s what investors should know about Nvidia.
Nvidia is shaping the AI boom
Nvidia is a fast computing company that provides hardware, software, and services across four end markets: gaming, professional visualization, data center, and automotive. Its invention of the graphics processing unit (GPU) in 1999 brought revolutionary visual effects to video games and movies, and the company still has a 90% market share in workstation graphics processors.
However, Nvidia redefined itself in 2006 when it introduced CUDA, a programming model that allows its GPUs to act as general-purpose processors. This innovation helped the company find data centers, where its GPUs became the gold standard in accelerating complex workloads such as scientific computing and artificial intelligence (AI).
In reality, Forster Research Nvidia GPUs are synonymous with AI infrastructure, he said, and the company has consistently achieved leading results in the MLPerf benchmarks, which evaluate the training and inference performance of AI hardware, software and services. This superiority has allowed Nvidia to capture an 80% to 95% market share in machine learning (ML) processors, according to analysts. The company also has a 95% market share in data center accelerators, according to CFRA analyst Angelo Zino.
Nvidia has cemented its position as the gold standard in AI chips by branching out into subscription software and cloud services. It recently launched DGX Cloud, which provides on-demand access to supercomputing infrastructure, software, and pre-trained ML models that support the development and deployment of AI applications, including generative AI applications. The service also provides frameworks that address specific use cases across various industries, from manufacturing and logistics to retail and cybersecurity.
DGX Cloud is an especially critical development because it unifies and democratizes access to Nvidia AI technologies. As Argus analyst Jim Kelleher put it, “Nvidia stands out, in our view, not just because it participates in so many parts of the dynamic AI economy, but because it has packaged its offerings into a first-of-its-kind AI-service delivered over the cloud.”
Nvidia reported record third-quarter results
Nvidia looked exceptionally strong in the third quarter of fiscal 2024 (ending October 29). Revenue rose 206% to $18.1 billion on record sales in the data center segment, and non-GAAP net income rose 588% to $10.0 billion as higher-margin software and services accounted for more of the total revenue .
The company also reported strong growth in gaming and professional visualization sales, as detailed below:
- Data Center Sales rose 279% to $14.5 billion.
- the games Sales rose 81% to $2.9 billion.
- Professional perception Sales jumped 108% to $416 million.
- the cars Sales rose 4% to $261 million.
Nvidia currently estimates its addressable market at $1 trillion, but that number should rise as more companies turn to AI in search of productivity gains. In fact, a report by Bloomberg Intelligence estimates that spending on AI alone will double 42% annually to reach $1.3 trillion by 2032.
Nvidia stock is trading at a reasonable price
Nvidia is well positioned to grow its business as artificial intelligence weaves its way into the fabric of everyday life. In fact, Wall Street consensus calls for the company to grow earnings per share 42% annually over the next three to five years. This makes its current valuation of 63 times earnings easier to accept. In fact, given their impressive growth, these companies appear cheap compared to competing chip makers and cloud infrastructure providers.
Specifically, Nvidia’s PEG ratio — its price-to-earnings multiple divided by expected annual earnings growth — is currently 1.5. This is a huge discount on AMD semiconductor stocks and… Intel Corporation, which have PEG ratios of 35.6 and 3.6, respectively. It’s also a discount for cloud providers Amazon And Microsoftwhich have PEG ratios of 2.8 and 2.5, respectively.
As a warning, 63 times earnings is not cheap in and of itself. But price-to-earnings multiples need to be taken into account in context. Nvidia’s earnings are expected to grow much faster than its peers, so the stock warrants a higher valuation. However, Nvidia is still a risky investment because the stock could fall sharply if the company fails to meet expectations.
Patient investors should consider buying a small position today. Shareholders may or may not see the 37% return in 2024 that analysts expect, but Nvidia has become the heart of the current AI boom. This will almost certainly translate into value for shareholders over the next five years.
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Genuine holds positions at Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, Nvidia, Palo Alto Networks, Tesla, and Uber Technologies. The Motley Fool recommends Carnival Corp. and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.