In recent years, the stock market has been on a wild ride, exhibiting the turbulent nature of equities from a bear market in 2022 to a robust recovery in 2023. Remarkably, the bullish trend appears poised to endure.
An analysis of the Nasdaq Composite dating back to 1971 reveals an average annual surge of 19% following a recovery year like 2023. While the past cannot foretell the future, this data has bolstered investor confidence.
The AI Powerhouses: Nvidia
If you marveled at Nvidia’s 2023 performance, brace yourself for what 2024 may unfold. With shares already soaring by an astounding 45% year to date, the iconic chipmaker continues its upward trajectory as it dominates the AI hardware realm.
Analysts and investors are increasingly optimistic about Nvidia’s ability to uphold its explosive growth trajectory, despite mounting industry competition. The company’s economic moat stems from its technical supremacy. While competitors grapple to match Nvidia’s flagship AI graphics processing units (GPU) – the H100 and H200 – the chipmaker is already developing a more advanced product, the B100. Expected to launch in 2025, this product could further solidify Nvidia’s lead.
Boasting a forward price-to-earnings (P/E) multiple of 35, Nvidia trades at a slight premium to the Nasdaq-100 estimate of 30. This valuation seems justified, given the company’s third-quarter profits surged twelvefold.
Amazon’s AI Trajectory
With its shares climbing by 67% over the past year, Amazon constitutes another tech behemoth propelling the Nasdaq to fresh highs. Fueled by ambitious cost-cutting initiatives, the company is gearing up to explore new AI prospects.
Under CEO Andy Jassy’s leadership, Amazon has sharpened its focus on efficiency through workforce reductions and optimizing its fulfillment network. These efforts have paid off handsomely. Despite a modest 14% increase in fourth-quarter net sales to $170 billion, operating income skyrocketed nearly fivefold to $13.2 billion, largely attributable to vastly improved margins in its North American and international e-commerce segments.
The cost-cutting measures align exquisitely with Amazon’s plans to make substantial investments in new growth opportunities, including a $4 billion investment in OpenAI rival Anthropic. This move could grant Amazon access to advanced large language models and a burgeoning client for Amazon Web Services (AWS), its cloud service platform.
Trillion-Dollar Titans
Nvidia and Amazon share one significant trait: colossal market capitalizations. At nearly $1.8 trillion each, they rank among the world’s most valuable companies.
These tech titans swiftly capitalized on new opportunities after maturing from their original businesses – video game chips and e-commerce. Artificial intelligence stands to unlock the next phase of long-term growth for both firms, making their stocks potential multipliers over the long haul.
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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 Amazon and Nvidia. The Motley Fool has a disclosure policy.