The tech-heavy Nasdaq Composite made an impressive recovery in 2023, posting a 43% surge as inflation eased and macroeconomic challenges became less of a concern. However, history indicates that the rally may just be the beginning. Analyzing data dating back to 1971, the index has historically registered an average annual surge of 19% following a bear-market rebound similar to the one witnessed in 2023. If past performance is indicative of future trends, then the prospects for the Nasdaq in 2024 seem rather promising.
Nvidia(NASDAQ: NVDA) and Amazon (NASDAQ: AMZN) stand out as potential investment opportunities, particularly as both companies are leveraging their growth strategies around artificial intelligence (AI) technology.
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Nvidia’s Momentum
Nvidia experienced an impressive 236% uptick in its shares over the past 12 months, positioning it as one of the Nasdaq’s standout performers in 2023. The demand for its data center chips for large language models, a critical component of AI chatbots, fueled the company’s resurgence. As AI applications continue to evolve and become more demanding, Nvidia’s growth potential seems to be just taking off.
Though 2023 marked a breakout year for AI, the technology remains in its early stages, as noted by an article in Time based on the accelerating rate at which AI is outperforming humans in various tasks. Nvidia is at the forefront of this trend, supported by its industry-leading chips like the H100, which drove a 206% year-over-year revenue surge to $18.12 billion in the third quarter.
While Nvidia faces competition from the likes of Advanced Micro Devices striving to capture a share of this opportunity with their own AI chips, experts project the market for such hardware to expand tenfold to $400 billion by 2027. This suggests ample room for multiple players to join the fray without significantly impeding Nvidia’s revenue growth and margins. Trading at a forward price-to-earnings (P/E) ratio of 24, Nvidia’s stock appears reasonably valued compared to the Nasdaq’s average of 29.
Amazon’s AI Expansion
With a market cap of $1.55 trillion, Amazon has solidified its position as one of the world’s largest companies, a feat achieved through strategic expansions across various industries, from e-commerce to cloud computing. The integration of AI technologies into its operations is poised to fuel its next phase of growth.
AI is becoming pervasive across Amazon’s operations, driving enhancements in product recommendations, optimization of order fulfillment, and bolstering its virtual assistant, Alexa, with advanced conversational capabilities. However, the most significant impact is likely to be witnessed in Amazon Web Services (AWS), where the company is creating a platform for enterprise clients to develop and scale their own AI applications.
Amazon’s September announcement to invest up to $4 billion in Anthropic, an AI research start-up akin to ChatGPT creator OpenAI, is emblematic of its commitment to AI innovation. As part of the arrangement, Anthropic will utilize AWS cloud services to train and deploy its models, potentially serving as a testament to Amazon’s new Trainium and Inferentia AI data center chips designed as high-performance, low-cost alternatives to third-party hardware. Trading at a forward P/E ratio of 38, Amazon’s stock, while seemingly pricier than the average Nasdaq stock, appears justified given its status as a well-diversified blue-chip company with a long track record of success.
What Lies Ahead?
While nothing in the stock market is guaranteed, there are several reasons for investors to be optimistic about 2024. The quelling of high inflation, which plagued the past two years, alongside prospects of the Federal Reserve lowering benchmark interest rates, bodes well for organizations seeking capital to sustain and expand their operations. This development could serve as a boost for AI start-ups, many of which rely on Nvidia and Amazon’s enterprise-focused AI solutions. Both tech giants seem poised for success in 2024 and beyond, making it opportune for investors to consider their long-term prospects.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Nvidia. The Motley Fool has a disclosure policy.