Navigating the Stock Market’s New Year: Unveiling Opportunities in Artificial Intelligence (AI)
The stock market’s impressive gains in 2023 have given way to a cautious start in 2024. Investors are rightly prudent after the Nasdaq Composite’s remarkable 43% surge last year. This article delves into historical trends and identifies two AI stocks poised for growth in the coming year.
Historical Patterns in Post-Bear Market Rebounds:
Looking back to 1972, the first full year of the Nasdaq’s existence, a consistent pattern emerges. In every year following a bear market rebound, the Nasdaq has experienced an average gain of 19%. While individual years have varied, ranging from a modest 7% increase to a substantial 38% surge, the historical trend suggests a positive outlook for the current market rally.
The Role of Generative AI in Market Momentum:
Evidence suggests that the emergence of generative AI played a significant role in the market’s surge in 2023. These advanced algorithms streamline menial tasks, allowing users to focus on higher-level activities. While AI is still in its early stages, several companies are leading the charge and are well-positioned to capitalize on this transformative technology.
AI Stock No. 1: Microsoft (MSFT)
Microsoft, a household name known for its Windows operating system and Office productivity suite, recognized the potential of generative AI and invested heavily in the field. The company acquired a $13 billion stake in ChatGPT creator OpenAI, developed Copilot, an AI-powered assistant that enhances productivity by automating repetitive tasks, and experienced strong demand for Copilot during its pilot and early access programs.
Microsoft’s Azure Cloud, a cloud infrastructure platform, benefited from the rising demand for AI services. The company reported revenue and EPS growth in fiscal 2024 first quarter, even before Copilot’s full impact. Favorable macroeconomic conditions, cloud computing adoption, and AI tailwinds bode well for Microsoft in 2024. Despite its strong track record, Microsoft trades at a reasonable valuation, making it an attractive investment opportunity.
AI Stock No. 2: Nvidia (NVDA)
Initially known for pioneering graphics processing units (GPUs) used in video games, Nvidia’s CEO, Jensen Huang, recognized the broader applications of GPUs, including data centers, cloud computing, and AI. The company’s data center segment, which includes processors used for AI, now surpasses gaming chips in revenue. Nvidia reported record revenue and diluted earnings per share in fiscal 2024 third quarter.
Nvidia dominates the market for processors used in data centers and machine learning GPUs. The high demand for AI processing drives upgrades in data center systems, benefiting Nvidia. Trading at a reasonable price/earnings-to-growth (PEG) ratio, Nvidia appears undervalued, making it an attractive investment opportunity for those seeking exposure to the AI sector.
Conclusion:
History suggests that the Nasdaq is poised for continued growth in 2024, following a year of impressive gains. The emergence of generative AI has fueled market momentum, and companies like Microsoft and Nvidia are well-positioned to benefit from this transformative technology. Investors seeking opportunities in the AI sector should consider these two stocks for their portfolios.
As always, consult a financial advisor before making any investment decisions.