Technology Bull Market Sparked by Innovations Generative AI in 2023 continued into the first half of 2024. Even focusing on technology broadly rather than the top performers in the sector, technology-intensive sectors Nasdaq Composite Index generated a total return of almost 19%.
Knowing this, investors may wonder which stocks could lead the way in the second half. Although the market offers no guarantees, the last two quarters of the year could be the time when some stocks seriously start to rise. In this article, three Motley Fool contributors provide insight into the stocks they think investors should watch for the rest of the year.
Alphabet is well positioned to exploit its dominance in the search market and leverage the riches of AI
Jake Lerch (alphabet): My choice is Alphabet (NASDAQ:GOOGL) (NASDAQ: GOOG)the parent company of Google. What I really like about Alphabet is that the company combines two of the most critical characteristics of any great stock: potential, best represented by its artificial intelligence (AI) tools, and results, as evidenced by its consistent financial performance.
Let’s start by looking at its potential. When it comes to AI, Alphabet has no limits. The company’s latest AI-powered personal assistant, Google Assistant, offers plenty of features to help users accomplish more. With voice commands alone, users can:
Set timers, create lists and save your locations and passwords.
Call, text, and read emails out loud.
Collect local information, such as weather, traffic, and directions.
Answer general questions, such as “how many grams in an ounce” or “how much is 18% of $57.”
Search and listen to music, movies or podcasts.
Moreover, The alphabet can write in capital letters Google is the world’s largest website, processing over 8.5 billion searches per day, or about one for every person on the planet. Alphabet therefore has a significant opportunity to make Google Assistant the preferred AI assistant. This could bring substantial benefits to Alphabet in the future as it explores ways to monetize Google Assistant through a subscription model where users pay a monthly fee for premium features or an advertising model where businesses pay to have their products or services recommended by the assistant.
In the meantime, Alphabet can rely on its already well-established businesses, such as Google Cloud, YouTube and Android, to continue to “make money.” These businesses have shown consistent growth and profitability, which reinforces Alphabet’s overall stability and investment potential.
In summary, Alphabet could be the AI stock to watch during the second half of 2024 – and beyond. Investors looking for a stock with an unbeatable combination of potential and results would be well advised to consider it.
The meta-stock has not finished riding the AI wave
Justin Pope (meta-platforms): Social media giant Meta-platforms (NASDAQ:META) is on a meteoric trajectory. Stocks are up 45% since January and have soared 326% since January 2023, when artificial intelligence began to gain momentum. In just 18 months, Meta stock has created the scale of wealth that the market as a whole typically takes decades to achieve. I understand that people are skeptical that Meta has more potential.
Still, fundamentals indicate that Meta could continue its current momentum into the second half of this year. This is mainly due to strong operational performance and a market valuation that remains borderline cheap. Meta’s main business is advertising to its billions of social media users. Meta is still gaining users impressively, even though many people already use its apps. Meta’s family of apps, which includes Facebook, Instagram and WhatsApp, reached 3.24 billion daily active users in the first quarter, a 7% year-over-year jump.
Digital advertising continues to take market share from older media formats like TV and print, so Meta is also benefiting from tailwinds there. Meta’s ad volume grew 20% year over year in the first quarter. Finally, Meta began using AI to help companies advertise more efficiently, which helped Meta’s price per ad increase by 6% in the first quarter. In other words, Meta is benefiting from multiple variables that are driving its core business.
Investors will need to see how Meta continues to perform in the coming quarters. Analysts are very bullish; 2024 earnings per share estimates of $20.16 would represent 35.5% growth from 2023. Meanwhile, analysts estimate that Meta will grow its earnings by more than 19% per year on average over the next three to five years. Given this healthy growth outlook, Meta stock arguably remains cheap with a forward price-to-earnings (P/E) ratio of 25.
Meta is a world-class company that has experienced great adversity in 2022. The comeback has created eye-popping returns. While Meta’s meteoric rise means there’s likely much less upside potential than before, investors shouldn’t jump ship too early. There’s still plenty of wind in the sails.
In AI chips, a rising tide could carry AMD
Will Healy (Advanced micro-systems): Given NvidiaDue to Microsoft’s dominance in AI chips, potential competitors are easy to dismiss at first glance.
However, according to Allied Market Research, the AI chip industry is expected to grow at a compound annual growth rate (CAGR) of 38% through 2032. With Nvidia apparently struggling to meet current demand, this leaves an opening for competitors such as Advanced microsystems (NASDAQ:AMD).
Even though Nvidia leads the innovation battle, AMD has a habit of catching up and sometimes surpassing its competitors. Additionally, while an Nvidia AI chip costs between $30,000 and $40,000, AMD semiconductors between $10,000 and $15,000 will likely appeal to customers eager to snap up every AI chip they can find.
More recently, investors have largely overlooked AMD, whose first-quarter 2024 revenue of $5.5 billion grew just 2% annually. However, its data center revenue of $2.3 billion grew 80% over the same period. Moreover, it represented 42% of the company’s overall revenue, comparable to Nvidia’s 39% share of data center revenue at the end of fiscal 2022 (ending January 30, 2022).
Fast forward to the first quarter of fiscal 2025 (ended April 28) and 87% of Nvidia’s revenue came from its data center segment. With AMD’s 80% data center growth mentioned above, Nvidia’s recent history shows how AMD could follow in its footsteps as AI chips become its primary source of revenue.
Additionally, driven primarily by AI chips, Nvidia’s revenue grew 262% annually during this quarter. While AMD may or may not reach this number over time, Nvidia’s recent story outlines what could happen to AMD’s revenue growth as AI chip sales accelerate.
Additionally, AMD enjoys a significant valuation advantage when you look beyond its misleading price-to-earnings ratio of 232. The company currently trades at a price-to-book ratio of about 4.5. By comparison, Nvidia sells for 63 times its book value. This gap makes AMD stock a relative bargain, giving it room to hold up as selling AI chips becomes a bigger revenue source.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Jake Lerch holds positions at Alphabet and Nvidia. Justin Pope has no position in any of the stocks mentioned. Will Healy holds positions in Advanced Micro Devices. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Meta Platforms and Nvidia. The Mad Motley has a disclosure policy.
3 AI Stocks for the Second Half of 2024 was originally published by The Motley Fool
