THE S&P500 ended 2023 in spectacular fashion. The index has posted nine consecutive weekly gains, its longest winning streak since 2004. In total, the S&P 500 climbed 24% last year as market sentiment improved amid signs of economic resilience .
Four sectors were primarily responsible for the market rise. The technology sector gained 56% and the communications services sector gained 53%, helped in many cases by enthusiasm for artificial intelligence. Discretionary consumption increased by 40%, as slowing inflation led to an acceleration in spending. Finally, the industrial sector increased by 18%, thanks to the resumption of business investment in structures and equipment.
Unsurprisingly, the 10 best-performing S&P 500 stocks in 2023 came from these four sectors, as detailed below:
Nvidia: 239% — technology
Metaplatforms: 194% — communication services
Royal Caribbean: 162% — discretionary consumption
Builders FirstSource: 157% — industrial
Uber: 149% — industrial
Carnival: 133% — discretionary consumption
Advanced microsystems: 128% — technology
Pulte Group: 127% — discretionary consumption
Palo Alto Networks: 111% — technology
You’re here: 102% — discretionary consumption
Nine of the stocks listed above enjoy a consensus Buy rating among Wall Street analysts (Tesla is the only exception with a consensus Hold rating). But analysts estimate Nvidia (NASDAQ:NVDA) is the group’s top pick in 2024. The stock has a 12-month median price target of $650 per share, implying a 37% upside from its stock price at the time of this writing.
Carnival currently ranks second with a 12-month median price target of $21.50 per share, implying an upside of 32%. And Meta Platforms is in third place with a 12-month median price target of $385 per share, implying a 12% upside.
Here’s what investors should know about Nvidia.
Nvidia is shaping the artificial intelligence boom
Nvidia is an accelerated computing company that provides hardware, software and services across four end markets: gaming, professional visualization, data center and automotive. His invention of graphics processor (GPU) in 1999 brought revolutionary visual effects to video games and movies, and the company still holds 90% of the workstation graphics processor market.
However, Nvidia redefined itself in 2006 by introducing CUDA, a programming model that allows its GPUs to function as general-purpose processors. This innovation has helped the company find a place in data centers, where its GPUs have become the benchmark for accelerating complex workloads such as scientific computing and artificial intelligence (AI).
Actually, Forrester Search said Nvidia GPUs are synonymous with AI infrastructure, and the company has consistently achieved top results in MLPerf testing, which evaluates the training and inference performance of AI hardware, software and services. AI. This superiority has allowed Nvidia to capture an 80-95% market share in machine learning (ML) processors, according to analysts. The company also has a 95% market share in data center accelerators, according to CFRA analyst Angelo Zino.
Nvidia has consolidated its leading position in AI chips by expanding into subscription software and cloud services. It recently launched DGX Cloud, which provides on-demand access to supercomputing infrastructure, software and pre-trained ML models that support the development and deployment of AI applications, including including generative AI applications. The service also offers frameworks that address specific use cases across different industries, from manufacturing and logistics to retail and cybersecurity.
DGX Cloud is a particularly important development because it unifies and democratizes access to Nvidia AI technologies. To quote Jim Kelleher, an analyst at Argus, “Nvidia stands out, in our view, not only because it participates in many parts of the dynamic AI economy, but also because it has synthesized its offerings in a unique AI of its kind. -a service provided via the cloud.”
Nvidia reported record third quarter results
Nvidia looked exceptionally strong during its fiscal third quarter 2024 (ended October 29). Revenue soared 206% to $18.1 billion on record sales in the data center segment, and non-GAAP net income increased 588% to $10.0 billion, with high-margin software and services accounting for a larger share of total revenue.
The company also saw solid sales growth in gaming and professional visualization, as detailed below:
Data center sales soared 279% to $14.5 billion.
Games sales increased 81% to $2.9 billion.
Professional visualization sales jumped 108% to $416 million.
Automotive sales increased 4% to $261 million.
Nvidia currently estimates its addressable market at $1 trillion, but that figure is expected to explode as more companies turn to AI in search of productivity gains. Indeed, a report from Bloomberg Intelligence estimates that spending on generative AI alone will increase by 42% per year to reach $1.3 trillion by 2032.
Nvidia stock is trading at a reasonable price
Nvidia is well-positioned to grow its business as AI becomes more integrated into everyday life. In fact, the Wall Street consensus calls for the company to grow its earnings per share by 42% annually over the next three to five years. This makes its current valuation of 63 times earnings easier to digest. Indeed, given its incredible growth, this multiple looks cheap compared to competing chipmakers and cloud infrastructure providers.
Specifically, Nvidia’s PEG ratio – the price-to-earnings multiple divided by expected annual earnings growth – currently sits at 1.5. That’s a big discount on AMD semiconductor stock and Intel, which have PEG ratios of 35.6 and 3.6, respectively. It’s also a discount for cloud providers Amazon And Microsoftwhich have PEG ratios of 2.8 and 2.5, respectively.
As a caveat, 63 times earnings is not cheap in and of itself. But the price/profit multiple must be considered in context. Nvidia is expected to grow earnings much faster than its peers, so the stock warrants a higher valuation. That said, Nvidia remains a risky investment as the stock could fall sharply if the company fails to meet expectations.
Patient investors should still consider buying a small position today. Shareholders may or may not see the 37% return analysts expect in 2024, but Nvidia has become the heart of the current AI boom. This will almost certainly translate into shareholder value over the next five years.
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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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennevine holds positions in Amazon, Nvidia and Tesla. The Motley Fool holds positions and recommends Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, Nvidia, Palo Alto Networks, Tesla and Uber Technologies. The Motley Fool recommends Carnival Corp. and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Here are the 10 best-performing S&P 500 stocks in 2023 and the group’s best stock to buy in 2024, according to Wall Street was originally published by The Motley Fool
