Nasdaq Evolution: Predictions and AI Stocks The Nasdaq Prognostication: Examining History and the Future of AI Stocks

By: Alex Freidmen

The past isn’t a crystal ball, but, at times, it can offer valuable insight into the future. An analysis of an index’s historical performance can reveal patterns that may recur in the present and future. This rings true for the Nasdaq Composite, pinning an optimistic prophecy for a substantial upsurge in 2024.

Since its establishment in the early 1970s, the Nasdaq has displayed a consistent trend: following an annual decline, it has registered gains for at least two consecutive years. Particularly, after every annual loss of 10% or more, the Nasdaq has soared by an average of 56% over the subsequent two years. Coupling this with last year’s 43% ascent, if history maintains its course, the index could be poised for another double-digit boost in 2024.

The AI Frontier: Leading Stocks for the Nasdaq Surge

Benefiting from a buoyant Nasdaq entails investing in companies that exert substantial influence on the index’s trajectory – specifically the top 10 most heavily weighted companies – and filtering for entities that currently present compelling growth prospects. This brings attention to two enterprises expected to spearhead the realm of artificial intelligence (AI), within a market projected to surpass $1.3 trillion by 2030. Let’s delve into two groundbreaking AI stocks to consider prior to the anticipated Nasdaq surge.

A data center is shown, with

Image source: Getty Images.

Nvidia: Pioneering AI with Dominance in GPU Market

Nvidia (NASDAQ: NVDA) initially gained prominence in the gaming and graphics sectors, leveraging its graphics processing units (GPUs) to fuel earnings expansion. However, the widespread adoption of GPUs beyond gaming has propelled Nvidia’s sales and share price to new heights.

These potent chips facilitate concurrent task handling by distributing work across multiple processors, significantly accelerating operations. This attribute renders Nvidia’s GPUs indispensable for AI, acting as the cornerstone for the “deep learning” integral to generative AI. Consequently, industries spanning healthcare to automotive are turning to Nvidia chips to fuel their AI initiatives.

In the most recent quarter, Nvidia recorded a record revenue of $18 billion, driven by unprecedented data center revenue, a segment reaping the rewards of the burgeoning AI market. Data center revenue skyrocketed by an impressive 279% to exceed $14 billion. The company not only surpassed operating expenses with an operating income of $10 billion but also exhibited a substantial increase in research and development spending, underscoring Nvidia’s strategic investments to sustain its leadership.

Metrics such as free cash flow and return on invested capital have ascended over the past year, a testament to Nvidia’s astute cash deployment and the fruits reaped from these investments.

NVDA Return on Invested Capital Chart

NVDA Return on Invested Capital data by YCharts

Nvidia currently commands over 80% of the GPU market. Although competitors have multiplied, the company’s pioneering stance, exceptional product, and an entrenched base of Nvidia GPU enthusiasts make it well-positioned to maintain its dominance.

An illustration emerges from the central processing unit (CPU) domain. While Advanced Micro Devices (AMD) has augmented its laptop CPU market share to 22% over a decade, it has not managed to dislodge leader Intel from its commanding 69% grasp. This scenario portends potential market share gains for AMD in the GPU space without necessarily unsettling Nvidia’s supremacy.

Despite Nvidia’s recent surge, its earnings growth, market leadership, and pivotal role in AI insinuate significant room for further advancement. Moreover, an equity market climate favoring growth bolsters the outlook for Nvidia, rendering it a top-tier stock to consider before the impending Nasdaq hike.

Alphabet: Spearheading AI-Infused Innovation

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is woven into our daily routines courtesy of its ubiquitous search engine, Google. The mainstay of its revenue stems from ad sales targeted at capturing our attention during online information quests. Alphabet’s allure to advertisers is grounded in Google’s entrenched dominance of the search market, which has consistently eclipsed a 90% share. Two compelling factors fortify this market supremacy.

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Primarily, human inertia favors steadfast commitment to habit, as most individuals are inclined to perpetuate “Googling” rather than exploring rival search engines. Hence, Alphabet enjoys a robust competitive advantage that indisputably fortifies its market leadership.

Furthermore, Alphabet’s substantial investments in AI to enhance its search capabilities not only consolidate user satisfaction but also fortify advertiser appeal as ad traffic is bolstered by superior user pull.

The company recently unveiled a significant stride in its AI journey with the launch of Gemini, its most expansive and high-performance AI model till date. Gemini’s operational scope spans diverse information formats including text, code, image, and video. With three distinct sizes, Gemini tackles assorted functions like answering complex queries and generating code in prevalent programming languages.

Gemini carries the potential to enrich the Google Search experience and outcomes, thereby fortifying Alphabet’s eminence. Alphabet’s strategic integration of Gemini across its products, like the Pixel smartphone, and its availability to cloud customers underscores its potential to revolutionize the company’s products and services.

Analyzing Alphabet’s Potential for Growth in Investor’s Portfolios

Alphabet Inc., the parent company of Google, continues to dazzle investors with its innovative drive and robust financial performance. Alphabet’s evocative stewardship of artificial intelligence, cloud computing, and other bleeding-edge technologies impels its stock to stand as a potential missile in a Nasdaq rocket. The company’s most recent quarterly financial report is further emblematic of its prowess.

Alphabet’s Strategic Foray into AI and Cloud Computing

Alphabet’s vigor in the arenas of artificial intelligence and cloud computing has been nothing short of a marvel. By securing prominent roles for Barry Diller and Roger Ferguson on its Board of Directors, Alphabet has laid a strong foundation for its strategic expedition into these domains. The projected collaboration with Nike in AI-equipped wearables not only reflects ingenuity but also indicates that Alphabet is earnestly expanding its turf into sectors that make conspicuous use of artificial intelligence.

An Uptick in Earnings Growth

Alphabet’s financial trajectory elucidates its meteoric rise. The company has maintained an upward trajectory of earnings growth over time. Even as advertisers pared down their expenses, Alphabet triumphantly narrated a tale of escalating quarterly revenues in the previous fiscal year. The most recent quarter saw a remarkable 11% surge in revenue, accentuated by gains in operating income and earnings per share.

An Insight for Investors

Considering prospective investment in Alphabet, it’s an evident fact that the company stands at the vanguard of technological innovation. An investor’s bent toward amplifying their portfolio’s growth potential could resonate with Alphabet’s AI-centric trajectory. If the Nasdaq takes an upward swing, Alphabet may very well be among the leading stocks driving the momentum.

Should investors pin their hopes on Nvidia’s stock?

In contrast, while contemplating a stock investment in Nvidia, it’s pivotal to ponder a crucial aspect–the Motley Fool Stock Advisor analyst team has recently identified the 10 best stocks for investors to buy, aimed at eliciting substantial returns over the forthcoming years. Nvidia, to the surprise of many, missed the cut. The Stock Advisor furnishes investors with a lucid game plan for attaining success, offering counsel on portfolio curation and regular insights from analysts, alongside two new stock picks each month. Since 2002, the Stock Advisor has reaped a return that transcends the S&P 500.

The 10 stocks that stand as the stock market’s standouts for potential investors might just guide you toward the best investment decision.

*Stock Advisor returns as of January 16, 2024

Suzanne Frey, a perspicacious executive at Alphabet, holds a position on The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has stakes in and recommends Advanced Micro Devices, Alphabet, and Nvidia