The macroeconomic challenges of the past couple of years are beginning to fade, and investors are looking to the future. After the Nasdaq Composite plunged in 2022, suffering its worst performance since 2008, the index enjoyed a robust recovery in 2023 and gained 43%.
There could be more to come. Since the Nasdaq Composite began trading in 1972, in every year following a market recovery, the tech-heavy index rose again — and those second-year gains averaged 19%. The economy is the wildcard here, though, and it could yet stumble in 2024. But historical patterns suggest that this could be a good year for investors.
Recent developments in the field of artificial intelligence (AI) helped fuel the market’s rise last year and will likely drive further gains in 2024. While estimates vary wildly, generative AI is expected to add between $2.6 trillion and $4.4 trillion to the global economy annually over the next few years, according to a study by McKinsey Global Institute. This will result in windfalls for many companies in the field.
Here are my top seven AI stocks to buy for 2024 before the Nasdaq reaches new heights.
Image source: Getty Images.
1. Nvidia
Nvidia (NASDAQ: NVDA) is the poster child for AI innovation. Its graphics processing units (GPUs) are already the industry standard chips in a growing number of AI use cases — including data centers, cloud computing, and machine learning — and it quickly adapted its processors for the needs of generative AI. Though it has been ramping up production, the AI chip shortage is expected to last until 2025 as demand keeps growing. The specter of competition looms, but thus far, Nvidia has stayed ahead of the competition by spending heavily on research and development.
The company’s triple-digit percentage year-over-year growth is expected to continue into 2024. Despite its prospects, Nvidia remains remarkably cheap, with a price/earnings-to-growth ratio (PEG ratio) of less than 1 — the standard for an undervalued stock.
2. Microsoft
Microsoft (NASDAQ: MSFT) helped jump-start the AI boom when it invested $13 billion in ChatGPT creator OpenAI, shining a spotlight on generative AI. The company’s tech peers jumped on the bandwagon, and the AI gold rush began. Microsoft seized the advantage, integrating OpenAI’s technology into its Bing search and a broad cross-section of its cloud-based offerings.
Its productivity-enhancing AI assistant, Copilot, could generate as much as $100 billion in incremental revenue by 2027, according to some analysts, though estimates vary. This and other AI tools already caused Azure Cloud’s growth to outpace rivals in Q3, and Microsoft attributed 3 percentage points of that growth to AI.
The stock is selling for 35 times forward earnings, a slight premium to the price-to-earnings ratio of 26 for the S&P 500. Even so, that looks attractive given Microsoft’s growth potential.
3. Alphabet
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) has long used AI to improve its search results and the relevance of its digital advertising. The company was quick to recognize the potential of generative AI, imbuing many of its Google and Android products with increased functionality and announcing plans to add new AI tools to its search product. Furthermore, as the world’s third-largest cloud infrastructure provider, Google Cloud is suited to offer AI systems to its customers.
A collaboration between Google and Alphabet’s AI research lab, DeepMind, gave birth to Gemini, which the company bills as its “largest and most capable AI model.” Google Cloud’s Vertex AI offers 130 foundational models that help users build and deploy generative AI apps quickly.
Add to that the ongoing rebound in its digital advertising business, and Alphabet’s valuation of 27 times earnings seems like a steal.
4. Amazon
There’s a popular narrative that Amazon (NASDAQ: AMZN) was late to recognize the opportunities in AI, but the company’s history tells a different story. Amazon continues to deploy AI to surface relevant products to shoppers, recommend viewing choices on Prime Video, schedule e-commerce deliveries, and predict inventory levels, among other uses. Most recently, Amazon began testing an AI tool designed to answer shoppers’ questions about products.
The Impact of AI Integration on Tech Companies
When it comes to technological innovation, artificial intelligence (AI) has emerged as a game-changer, revolutionizing the way businesses operate and paving the way for unprecedented growth and profitability. Several tech companies have skillfully capitalized on AI integration to enhance their product offerings, elevate operational efficiency, and expand revenue streams. This article delves into how Amazon, Meta Platforms, Palantir Technologies, and Tesla are leveraging AI to ramp up their fortunes in the competitive corporate landscape.
Meta Platforms Embraces AI
Meta Platforms (NASDAQ: META) has a historical track record of deftly using AI to its advantage. The company adeptly harnesses AI technology for various functions such as identifying and tagging individuals in photos and curating relevant content on its social media platforms. Although Meta lacks a cloud infrastructure service, it strategically circumvented this obstacle by developing the open-source Llama AI model, which it made available on all major cloud services for a fee. Furthermore, the company offers a suite of free AI-powered tools to empower advertisers. With the improvement in economic conditions, Meta’s digital advertising business is poised to soar, rendering the company an economical investment opportunity at just 22 times forward earnings.
Innovative AI Solutions at Palantir Technologies
Palantir Technologies (NYSE: PLTR), with its two decades of experience in developing AI-powered data analytics, swiftly adapted to the AI surge by incorporating generative AI models into its portfolio. The introduction of the Palantir Artificial Intelligence Platform (AIP) has sparked considerable enthusiasm, as evidenced by the statement from the management expressing unparalleled demand for AIP. The company’s astute maneuvering to cater to the burgeoning demand for generative AI positions it favorably, especially considering that Palantir boasts a PEG ratio of less than 1, underlining its compelling value proposition for investors.
Tesla’s AI Infusion in the EV Industry
Tesla (NASDAQ: TSLA) has been a trailblazer in popularizing electric vehicles (EVs) and envisages a prosperous future closely intertwined with AI. While the attainment of full self-drive capabilities remains an aspiration, the potential success in this domain holds promising prospects for shareholders. Notably, Tesla’s participation in the realm of robotaxis, which holds estimated revenue generation of $4 trillion in 2027, could provide a substantial technological advantage, contingent upon cracking the autonomous driving code. Priced at 6 times forward sales, Tesla presents an attractive valuation proposition, particularly as a pioneering industry leader equipped with a treasure trove of data.