Tech stocks rebounded strongly in 2023, fueled by diminishing concerns about an impending recession. Additionally, investors’ excitement surrounding advancements in artificial intelligence (AI) technology played a significant role in pushing tech stocks higher.
As I look forward to the remainder of 2024, the positive momentum in tech stocks will likely persist. This is due to the anticipated decrease in interest rates and the overall resilience of the economy.
Spotify: The Sound Investment
Spotify is the leading audio streaming subscription service provider. The company offers both Premium and Ad-Supported Services. Spotify is performing exceptionally well, with all its key performance indicators showing strength.
For instance, Spotify’s monthly active users (MAU) grew 26% year-over-year in Q3, reaching 574 million and surpassing the guidance by 2 million. Net additions were 23 million, its second-largest Q3 performance in its history. Premium Subscribers rose 16% year-over-year and totaled 226 million, about 2 million higher than its guidance. Meanwhile, top-line growth accelerated and registered a 17% increase on a constant currency basis. Spotify’s gross margin was 26.4%, up 166 basis points, and also outperforming guidance.
The company expects to reach more than 600 million MAUs in 2023. Moreover, it is on track to hit 1 billion global users by 2030. While Spotify is growing its user base rapidly, it implemented price increases across more than 50 markets in Q3. This will likely bolster its top line and margins in 2024.
Spotify is also broadening its ecosystem by venturing into new verticals. It introduced audiobook offerings for Premium subscribers. This strategic expansion will likely enhance user engagement and lower churn, thereby strengthening Spotify’s overall value proposition.
In summary, Spotify’s growing user base, increased pricing, venture into audiobooks, and streamlined cost structure following significant workforce reductions position the company for robust revenue and margins in 2024. However, Spotify stock has more than doubled over the past year, which may be part of the reason why some Wall Street analysts refrain from endorsing it.
Among the 26 analysts covering Spotify stock, 14 have a “Strong Buy” recommendation, two analysts recommend “Moderate Buy,” and 10 maintain a “Hold.” The average price target for SPOT is $210.42, which suggests a limited upside potential from current levels.
Advanced Micro Devices: Powering the Future
Advanced Micro Devices is well-positioned to capitalize on the growing adoption and deployment of AI technology, thanks to its broad portfolio of energy-efficient graphics processing units (GPUs), central processing units (CPUs), and adaptive computing solutions for AI training and inference.
The company’s leadership recognizes AI as a lucrative growth opportunity, estimating it to be a multibillion-dollar prospect for AMD across various sectors.
For example, the company’s CEO, Lisa Su, expects the data center accelerator total addressable market to grow at a CAGR of more than 70% through 2027, and reach $400 billion. This opens up massive growth opportunities for the company. Consequently, AMD recently launched the MI300X, its highest-performance accelerator. AMD has also increased its investments in AI-related research and development to capture a substantial portion of the growing data center accelerator segment.
Additionally, AMD is broadening its collaborations with prominent cloud providers and numerous leading AI startups.
Thanks to significant growth opportunities, AMD expects Data Center GPU revenue to reach approximately $400 million in the fourth quarter and surpass $2 billion in 2024, with revenues gaining momentum throughout the year. This growth would establish the MI300X as the fastest product in AMD’s history to achieve $2 billion in sales.
Analysts are optimistic about AMD’s robust growth potential, as reflected in their bullish stance on its stock. Among the 30 analysts covering AMD, 24 recommend a “Strong Buy,” one analyst has a “Moderate Buy” rating, and five maintain a “Hold.” Further, AMD stock has more than doubled over the past year, and its current market price is above the average price target of $148.26.
Bottom Line
Both Spotify and AMD stocks have gained significantly in value over the past year, which raises legitimate concerns regarding their valuations. However, these companies are well-positioned to deliver stellar revenue growth and expand margins in 2024, which warrants their premium valuation.