THE Nasdaq-100 Technology Sector The index performed exceptionally well in 2023 with an impressive gain of 68%. Technology stocks have regained momentum thanks to favorable economic developments, as well as artificial intelligence (AI).
The good news is that the Nasdaq-100 looks poised to soar in 2024, thanks to potential interest rate cuts from the Federal Reserve, low recession chances, slowing inflation and surging the economy. adoption of AI this will likely help some big tech names maintain their fantastic growth. It’s worth noting that the Nasdaq-100 Index has only had seven years of decline since its launch in January 1985.
Additionally, the index tends to rebound strongly in the years following a down year. For example, the Nasdaq-100 rose 53% in 2009 and 19% in 2010 after a 42% decline in 2008. A similar trend was seen in 2019 and 2020, when the index jumped 38% and 47%, respectively, after a 42% decline in 2008. 1% decline in 2018. There is therefore a high probability that the Nasdaq-100 will rise in 2024, especially given the economic tailwinds mentioned above.
That’s why now would be a good time for investors to buy some of the best-performing stocks in the Nasdaq-100 Index before they soar in the new year. Nvidia (NASDAQ:NVDA) And Amazon (NASDAQ:AMZN) are two such names that could continue to crush the market in 2024 after gains of 245% and 77% in 2023. Let’s look at the reasons.
The adoption of generative AI has driven Nvidia’s growth in 2023 and sent its shares soaring. The chip giant’s big jump appears deserved, as its dominant control over the AI chip market has led to a sharp increase in revenue and profits over the past two quarters.
Nvidia is on track to finish fiscal 2024 (which ends in January 2024) with revenue of $59 billion, an increase of 118% from the previous fiscal year. Additionally, the company’s immense pricing power in this market has led to an even greater increase in profits. Nvidia’s flagship H100 AI graphics card costs between $25,000 and $40,000 and would cost around $3,300 to manufacture, according to investment bank Raymond James.
This explains why analysts expect Nvidia’s bottom line to grow nearly 3.7 times year over year to $12.29 per share in fiscal 2024. More importantly, Nvidia is is preparing to sustain its meteoric growth in the new year by securing a greater supply of components for its AI chips. Supply chain sources suggest the company paid substantial advances of $540 million and $770 million, respectively, to memory makers. SK Hynix And Micron technology to get its hands on high-bandwidth memory (HBM) chips, which are deployed in its AI graphics cards.
Reports also indicate that Nvidia has signed a contract for HBM chips with Samsung Also. Meanwhile, Nvidia’s foundry partner Semiconductor manufacturing in Taiwanpopularly known as TSMC, is enhancing its advanced chip packaging capability manufacturing more AI chips in 2024. All this could help Nvidia triple production of its very popular H100 AI graphics cards in the new year, as the British daily Financial Times points out.
With Gartner Projecting a 25% increase in AI chip revenue in 2024 to $67 billion, Nvidia is doing the right thing by securing increased supply. This will allow it to maintain its dominance in the AI chip market, where it had an 80% share. Unsurprisingly, consensus estimates call for Nvidia’s revenue to rise 56% next year to $92 billion. Its profits are expected to jump 67%.
However, don’t be surprised to see Nvidia post stronger growth thanks to a big increase in production of its AI chips, which could help its shares generate eye-popping gains again in 2024. Given that Nvidia is trading at a price-to-earnings-to-growth ratio (PEG ratio) of just 0.5, buying this AI stock is a no-brainer, as a PEG ratio below 1 means a stock is undervalued.
E-commerce and cloud computing giant Amazon has been widely rewarded in the market for the impressive growth it has achieved over the past few quarters. The company’s revenue in the first nine months of 2023 rose nearly 11% year over year to $405 billion, and its guidance for the final quarter indicates it could generating annual revenue of $568.5 billion. This would represent an increase of approximately 11% over 2022 levels.
More importantly, Amazon’s growth is expected to remain robust in 2024 and 2025 as well, as the following chart indicates.
However, there is a good chance that Amazon can generate stronger growth through higher e-commerce spending, as well as increasing adoption of cloud-based AI services.
According to eMarketer, global e-commerce revenue is expected to grow 9.4% in 2024 to $6.3 trillion, up from estimated growth of 8.9% in 2023. It is worth noting that Amazon has recently surpassed the growth of the global e-commerce market. In the third quarter, for example, the company’s North American e-commerce revenue grew 11% year-over-year, while international revenue grew by a similar figure in constant currency terms.
The sunny outlook for the global e-commerce market in 2024 is therefore expected to help accelerate the growth of the business. However, there is another catalyst that could shake things up more significantly and help exceed Wall Street’s expectations: cloud computing.
The tech giant’s cloud computing offering, Amazon Web Services (AWS), is the largest player in the cloud infrastructure services market, with a 32% share, according to Synergy Research Group. This puts Amazon in a good position to capitalize on the growing demand for cloud-based AI services.
It is estimated that the cloud AI market could grow at an annual rate of 36% through 2032 and generate an annual revenue of $887 billion by the end of the forecast period. Amazon has already started to capitalize on this opportunity. The company’s AI offerings on AWS are used by companies such as BMW, NatWest, PwC and Genpact, among others, to integrate AI into their operations.
As such, it would not be surprising to see an acceleration in AWS growth in 2024 and beyond as adoption of cloud AI services increases. Given that Amazon is currently trading at 2.9 times sales compared to its five-year average sales multiple of 3.4, investors are currently getting a good deal on the stock. They may not want to miss this opportunity: Another strong year for the Nasdaq-100 in 2024 could send this tech stock soaring, especially given the lucrative catalysts it relies on.
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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. Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft and Gartner. The Mad Motley has a disclosure policy.
2 Stocks to Buy Before the Nasdaq Soars in 2024 was originally published by The Motley Fool