The Nasdaq has soared higher over the past two years, rising over 43% last year and now on track to rise over 33% by 2024. This is thanks to the artificial intelligence (AI) boom, as five of the heaviest weighted benchmarks stocks and several others from the top 10 are active in this fast-growing area. The current $200 billion AI market is expected to exceed $1 trillion by the end of the decade, meaning companies that got involved early in this technology could benefit immensely in the years to come.
Why is everyone excited about AI? Because it could revolutionize the way many things are done, saving companies time and money – and that’s great news for profit growth. This alone could give us optimism about the path the Nasdaq will take next year.
But history also gives us reason to believe in another Nasdaq victory. Since 1990, five out of six winning periods have resulted in the index rising for more than two consecutive years. So the Nasdaq has generally posted three or more years of gains recently.
Of course, there’s no guarantee this will happen; Indexes and stocks can surprise us, but when they do, you need to be prepared. And the best way to prepare is to buy one particular stock before the Nasdaq takes off again. Let’s find out which one.
This player is a member of the Nasdaq, the S&P500and recently it became a member of the Dow Jones Industrial Average. It has advanced more than 2,400% in the past five years. But don’t worry. Thanks to its dominance in the AI market and something important currently unfolding, it could still have plenty of room to operate. And that’s why it’s still an excellent buy today, one that could lead the Nasdaq higher again next year.
I’m talking about Nvidia (NASDAQ: NVDA)the seller of the world’s most powerful graphics processing units (GPUs). These chips are key elements in many crucial AI tasks, such as training and inferring models. Customers have recognized Nvidia’s strength in this area, which is why they have been willing to wait for delivery of these flagship products and pay more than they would for competing AI chips. In reality, Oracle co-founder Larry Ellison even said recently that he and Tesla leader Elon Musk even begged Nvidia’s boss, Jensen Huang, for more GPUs.
So the world’s largest companies – who have the resources to invest heavily in AI – see value in choosing Nvidia over the competition. This and Nvidia’s promise to update its GPUs annually should keep the company at the forefront of this rapidly evolving industry.
One thing in particular could translate into strong earnings in the coming quarters, as well as more gains for the stock. This quarter, Nvidia is ramping up production of its new Blackwell architecture, a breakthrough offering with many customizable features, such as different chips and networking options. Blackwell is Nvidia’s strongest AI platform yet, and demand is “mind-boggling,” the company said on its most recent earnings call.
In fact, Nvidia expects several billion dollars in Blackwell revenue during this first quarter of commercialization. So as this launch unfolds and Blackwell begins to make a major contribution to Nvidia’s already rising revenue (revenue rose 94% to $35 billion in the most recent quarter), investors may continue to focus on this market leader.
But what about the valuation? At 47 times forward earnings estimates, Nvidia stock isn’t dirt cheap. However, I also don’t think this level is extremely expensive, given Nvidia’s market leadership, commitment to innovation, and another key element: Nvidia’s profitability on sales. The company has managed to maintain a gross margin of more than 70% in recent quarters.
All of this could boost Nvidia in the coming quarters and fuel further gains on the Nasdaq in 2025. The good news is that even if Nvidia stock takes a break next year, the long-term earnings picture remains rosy, meaning investors can still make a profit. great victory in time.
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*Stock Advisor returns December 9, 2024
Adria Cimino has positions in Oracle and Tesla. The Motley Fool has and recommends positions in Nvidia, Oracle, and Tesla. The Motley Fool has a disclosure policy.
History says the Nasdaq will boom in 2025. These are the first AI stocks you should buy before this happens. was originally published by The Motley Fool
