The US stock market has staged an impressive bull rally over the past year and a half, despite a slowing economy, high inflation and mounting geopolitical pressure. The tech-heavy Nasdaq Composite The index posted a remarkable 43% gain in 2023, mainly driven by the artificial intelligence (AI) trend. The trend appears to have continued, with the Nasdaq Composite up 14% so far in 2024.
Investors may now feel uneasy about picking up high-flying Nasdaq stocks after such an exceptional rally. However, some of these AI-powered companies are dramatically reshaping industries with their technological innovations and could be a smart choice for savvy retail investors even at high stock prices. This is why Nvidia (NASDAQ: NVDA) And Metaplatforms (NASDAQ: META) fits the bill.
Nvidia
It’s no surprise that semiconductor giant Nvidia is on this list. With its extensive portfolio of advanced CPUs, GPUs and superchips (GPUs + CPUs), a robust software ecosystem and strong partnerships with technology titans, the company emerged as one of the key beneficiaries of the ongoing AI boom.
Dramatically increasing demand for Nvidia’s full-stack AI computing platform was key to increasing data center revenues an explosive 427% year over year to $22.6 billion in the first quarter of fiscal 2025 (ending April 28, 2024 ). The data center business now represents almost 87% of the company’s total revenue and shows no signs of slowing down – especially against the backdrop of increasing adoption of generative AI technologies and large language models.
Cloud service providers, technology titans, and startups are investing heavily in large language models (LLMs) for content creation, chatbots, code generation, and more. Training and inferring LLMs requires a tremendous amount of computing power, and Nvidia’s recently introduced H200 and next-generation Blackwell architecture chips appear ideally positioned to meet these needs. However, Nvidia expects supply of H200 and Blackwell chips to lag demand until next year, giving the company significant pricing power.
Although the mismatch between supply and demand could theoretically provide opportunities for competitors such as Advanced micro devices And IntelNvidia can still protect its turf thanks to technological superiority and established strategic relationships with customers. The company accelerated the pace of new chip launches from two to one year, meaning customers will get access to the latest technologies much faster. It also helps that Nvidia’s new chips are backwards compatible, and that its software ecosystem works with both Hopper and Blackwell systems.
The company also introduced certain innovations in its Compute Unified Device Architecture (CUDA) software stack. The supporting software platform is optimized for accelerated computing across the company’s hardware portfolio, which has helped improve the performance and cost utilization of the Blockbuster H100 chip when running inference workloads for select models. All this has helped Nvidia build a steady customer base.
Nvidia, which trades at 36.7 times forward earnings, is not a cheap stock. But the recently announced 10-for-1 stock split, effective June 10, 2024, will make the stock much more accessible to retail investors – although it doesn’t change anything fundamental about the company.
Given Nvidia’s prowess in capitalizing on ever-expanding AI capabilities, its commitment to innovation, and its increasing accessibility to retail investors, this could be an attractive choice in 2024.
Metaplatforms
Metaplatforms came out with impressive results for the first quarter (ending March 31, 2024), with revenue and profit exceeding consensus estimates. However, since reporting results on April 24, the stock has seen some pullback as investors worry about the company’s higher cost outlook for the year. Despite these short-term issues, there’s still a lot to like about these social media and digital ads in the long run.
Nearly 3.24 billion people – 40% of the world’s population – use Meta’s social media applications (Facebook, Instagram, WhatsApp and Messenger) every day. This enormous target group gives Meta access to large amounts of personalized data. With this data, Meta uses advanced AI technologies to recommend more relevant and personalized content to users, helping to increase user engagement on its social media applications.
About 30% of posts on Facebook feeds and 50% of Instagram content are recommended by AI. A more engaged user base translates to more ad views, purchase conversions, and more revenue for Meta. This is evident considering that ad impressions on Meta’s apps globally grew 24% year-over-year, while the average price per ad rose 6% year-over-year in the first quarter.
Meta sees even more potential for content personalization by using a unified AI-based recommendation system across all its applications and all content formats (Reels, long video format, stories, feeds), rather than using individual AI models for different products. The company is testing the new model architecture and seeing significant improvement in certain key metrics.
To support its investments in building AI infrastructure, Meta has targeted a capital investment (capex) of $35 to $40 billion for fiscal year 2024 (up from the previous estimate of $30 to $37 billion). While the accelerated pace of capital investment may seem challenging in the short term, it could help Meta beat the AI competition in the long term. Meta also has the financial resources to support its plans as it is highly profitable and has positive free cash flow.
Given these aspects, Meta is positioned to continue to dominate the global digital advertising market, which is expected to grow from $550 billion in 2023 to $1.36 trillion in 2033. It makes sense for retail investors to buy the dip in this solid stock.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls to Intel and short August 2024 $35 calls to Intel. The Motley Fool has a disclosure policy.
2 Rising Nasdaq Stocks I’d Buy Right Now Without Hesitation Originally published by The Motley Fool
