The past isn’t exactly a crystal ball. But sometimes, a look back can provide us with clues as to what may be It happens in the future. You can apply this to investing by looking at the past performance of an index and noting patterns that may repeat themselves today or in the future. And by doing it now, you will see history calling Nasdaq Composite To rise in 2024.
Since the index was launched in the early 1970s, as part of each recovery from an annual decline, it has achieved gains for at least two consecutive years. After each annual loss of 10% or more, the Nasdaq rose an average of 56% during those two years. Given the Nasdaq’s 43% advance last year, if the index follows its previous routine, it could be headed for another double-digit increase in 2024.
How can you as an investor benefit from the rise of the Nasdaq index? By investing in the companies that contribute the most to the index’s movement – such as the top ten most heavily weighted companies in the index – and then narrowing that down to companies that offer exciting growth prospects now. Which brings me to two companies set to lead the artificial intelligence (AI) space, a market expected to reach more than $1.3 trillion by 2030. Let’s check out two revolutionary AI stocks to buy before the Nasdaq rockets higher.
Image source: Getty Images.
1. Nvidia
Nvidia (NVDA 4.17%) It began to conquer the gaming and graphics markets thanks to graphics processing units (GPUs) – generating gains in profits over time. But in recent years, the rest of the world has discovered the power of GPUs, and Nvidia’s sales and stock prices have taken off.
These powerful chips handle multiple tasks at the same time, by dividing the work between several processors, and as a result, they significantly speed things up. This makes Nvidia GPUs an essential tool for AI, serving as an engine for the “deep learning” associated with generative AI. As a result, industries from healthcare to automotive are turning to Nvidia chips to power their AI programs.
Last quarter, Nvidia’s revenue rose to a record $18 billion, led by record data center revenue — a business that is benefiting from the booming artificial intelligence market. Data center revenues rose 279% to more than $14 billion. Operating income of $10 billion well exceeded operating expenses, which is another positive point – and at the same time, increased R&D spending shows that Nvidia is investing to stay ahead of the pack.
Important metrics of free cash flow and return on invested capital have risen over the past year, which is evidence that Nvidia is using its cash wisely and making good on those investments.
NVDA return on invested capital data by YCharts
Today, Nvidia has over 80% of the GPU market, and despite the multiplication of competitors, I am confident that this leader will continue to dominate. This is because the company has the advantage of first to market and best product, and loyal fans of Nvidia’s GPU performance may not be inclined to switch.
This illustrates the trend in the central processing unit (CPU) market. Advanced micro devices (AMD) increased its share of the laptop CPU market to 22% over a decade, according to Statista — but during that period, it wasn’t able to dethrone the leader Intel CorporationWhich accounts for 69% of the market. All of this means that AMD, which is also in the GPU market, could gain share over time – but without necessarily disrupting Nvidia’s dominance.
Yes, Nvidia shares have soared recently, but the company’s earnings growth, market leadership, and key role in artificial intelligence mean there’s plenty of room for gains. A growth-friendly stock market environment should favor Nvidia as well, making it one of the best stocks to buy before the Nasdaq rises.
2. Alphabet
the alphabet (Gog 2.06%) (Google 2.02%) It is essential in our daily lives thanks to the famous search engine Google. The company makes most of its revenue by selling ads to those who aim to catch our attention as we search for different types of information online. Advertisers are flocking to Alphabet because, as you can probably guess, Google dominates the search market. I’ve always held more than 90% equity, and for two main reasons, I don’t expect that to change.
First, it’s hard to change routines – meaning most of us are more likely to keep “Googling” our questions rather than trying a competing search engine. So, here Alphabet has a moat, or a competitive advantage that can keep it ahead.
Secondly, Alphabet has invested heavily in AI to improve its search capabilities – this should please us, the users, and as a result we will keep coming back. This means that advertisers will keep coming back to Alphabet as well.
The company recently announced a major step forward in AI when it launched Gemini, its largest and most performing AI model to date. Gemini works across information types, from text to code, image and video. The Gemini models – in three different sizes – handle different tasks including answering questions on complex topics and creating code in popular programming languages.
It’s clear that Gemini can improve Google’s search experience and search results in the future, ensuring Alphabet’s dominance. Alphabet is also adding Gemini to its other products — such as its Pixel smartphone — and making Gemini available to its cloud customers. Therefore, this AI tool could be a game-changer for Alphabet as it improves the performance of the company’s products and services and allows cloud customers to leverage the technology.
Furthermore, Alphabet already has a strong track record of earnings growth over time. The company was able to maintain quarterly revenue increases last year even as advertisers cut spending. In the most recent quarter, Alphabet reported an 11% increase in revenue and gains in operating income and earnings per share.
All of this means that if the Nasdaq rockets in 2024, artificial intelligence giant Alphabet could be among the stocks leading the way.
Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool recommends 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.