The Nasdaq Trend
In the stock market, historical patterns can provide valuable insights for future investment decisions. Upon analyzing Nasdaq Composite data dating back to 1971, it becomes evident that the tech-heavy index has consistently surged by an average of 19% annually after a recovery year similar to the one experienced in 2023. This trend has historically indicated that 2024 could present an opportune year for stock investments, particularly as macroeconomic challenges like inflation and high interest rates gradually recede.
Amid this backdrop, AI-related companies such as Nvidia (NASDAQ: NVDA) and Palantir Technologies (NYSE: PLTR) stand out as promising investment options. These two companies are poised to capitalize on the potential surge in the tech market, with their AI-focused business models driving potential future growth.
The Nvidia Advantage
Nvidia, following a remarkable performance in 2023, has kicked off 2024 on a high note, with its shares surging by 24% in January. The company’s robust AI chip business continues to generate widespread optimism, positioning it well for sustained growth in the coming years. Despite increasing competition, Nvidia’s established position in the market places it in a favorable position to maintain its long-term edge.
With over 80% market share in the graphic processing units (GPUs) segment used for AI applications, Nvidia has recorded a significant surge in operational results, including a remarkable 206% year-over-year jump in third-quarter revenue to $18.12 billion. While new competitors are aiming to challenge Nvidia’s dominance, the company’s extensive developer base and tailored hardware-software compatibility provide a substantial economic moat, solidifying its industry leadership. Moreover, with a relatively modest forward price-to-earnings (P/E) multiple of 30, Nvidia emerges as an attractive investment option considering its impressive growth trajectory.
The Palantir Proposition
Similarly, Palantir’s stock has experienced a surge of nearly 140% over the past 12 months, underpinned by its burgeoning profitability and ambitious foray into AI. While not directly involved in AI chip production, Palantir offers investors a stake in the widespread adoption of AI technology across government agencies and military applications.
Beyond hardware, Palantir’s strategic advantage lies in its expertise in software solutions tailored for diverse end users. The company’s track record in pivotal national security missions and its launch of the Artificial Intelligence Platform (AIP), integrating legacy machine learning tools with large language models, positions it for real-time insights in mission-critical scenarios. Despite a forward P/E multiple of 58, indicating a relatively higher valuation, Palantir’s momentum and growth prospects make it a compelling investment candidate as it scales up its AI-driven initiatives.
Nvidia: The Top Choice
While both Nvidia and Palantir offer avenues for investors to capitalize on the expanding AI landscape, Nvidia remains the preferred choice for most investors. Despite the apprehension of investing in a stock that has experienced rapid appreciation, Nvidia’s current performance and future growth potential adequately justify its market surge. While Palantir exhibits commendable growth and progress toward profitability, its relatively higher P/E multiple of 58 positions it as a less attractive value proposition compared to Nvidia’s P/E of 30.
*Stock Advisor returns as of January 22, 2024
The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.