The first half of 2024 was a strong year for the stock market, and the clear leader of this growth was Nvidia (NASDAQ: NVDA). The chipmaker’s stock has seen a meteoric rise over the past five years and that momentum has continued into the first half of 2024, with the stock up more than 150%.
However, with the first half of the year now behind us, it is time to look for a stock that can potentially help propel the market higher in the second half of the year. One candidate is Alphabet (NASDAQ:GOOGL) (NASDAQ: GOOG).
All about AI
The biggest market trend in the first half of 2024 was clearly artificial intelligence (AI)Not long ago, AI was considered a nascent technology. But it became very popular earlier this year, with many tech companies starting to offer AI-powered features in their products.
The first big beneficiary of this technological change was Nvidia, whose graphics processing units (GPUs) are used to build the infrastructure needed for AI training and inferenceAs AI takes off and companies rush to introduce AI solutions, demand for Nvidia chips has outpaced supply as the company has worked with its manufacturing partners to rapidly ramp up its production capacity.
This led to explosive growth for the company early in the year, with first-quarter revenue up 262% to $26 billion.
Why Alphabet Could Lead the Market Higher
AI infrastructure was the dominant theme in the first half of the year. But it may be Nvidia’s cloud computing customers that will help drive the market forward in the second half. The three major cloud computing companies Amazon, Microsoftand Alphabet have all benefited from the rise of AI so far, but they still have much greater growth potential ahead.
Of the three companies, my favorite is Alphabet for several reasons.
The first reason is that the cloud computing segment, the smallest of the three, has one of the best potential for profit growth. The cloud computing industry is associated with many high fixed costs, so companies must achieve a certain level of scale before they become profitable. However, once they do, the operating leverage of the business model begins to kick in and profitability growth outpaces revenue growth.
Google Cloud recently reached this scale and became profitable last year. As such, the segment is expected to see strong profitability growth both in the second half of this year and in the years to come.
Second, while the company’s introduction of new AI overlays to its search results has been a bit of a challenge, it has solid potential in this area. Alphabet has traditionally only served link-based ads on about 20% of its search results and only got paid when those links were clicked. However, the company is already testing new ad formats with both its AI overlays and new AI-powered formats for retailers. Given that 80% of its search results were previously unmonetized, this offers huge growth potential in the coming years.
At the same time, Alphabet is also the cheapest stock of the “Magnificent Seven,” trading at a forward price-to-earnings (P/E) ratio of less than 25. Given this, in addition to its growth prospects, the stock also has the potential to expand its multiples (i.e., simply when its P/E ratio and other valuation metrics increase). This sets the stock up for potential strong performance in the second half of this year.
While I still wouldn’t consider Nvidia a market leader in the second half, given its business momentum, I think Alphabet is a strong contender to lead the market forward. year.
Fortunately for investors, there is no need to choose just one company and they can own both Nvidia and Alphabet. Both of these companies have a promising long-term future.
Should You Invest $1,000 in Alphabet Right Now?
Before buying shares in Alphabet, consider this:
THE Motley Fool Stock Advisor The team of analysts has just identified what it believes to be the 10 best stocks for investors to buy now…and Alphabet wasn’t one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia I made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $757,001!*
Securities Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. Securities Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 24, 2024
Randi Zuckerberg, former head 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 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. Geoffrey Seiler holds positions at Alphabet. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
Nvidia led the market higher in the first half of 2024, but another title “Magnificent Seven” is poised to propel the market in the second half was originally published by The Motley Fool
