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Growth investors experienced a tough year in 2022. Nasdaq Composite At its lowest point, it’s down more than 35%. After the tech-heavy index soared 43% in 2023, that feels like a long time ago. It currently trades just 2.5% off its all-time high.
History shows investors could have even better times in 2024. This index has historically performed well after similar large drawdowns throughout the past.
Excitement over advances in artificial intelligence (AI) fueled the market’s rise. Additionally, some of the leading AI stocks still have growth potential and reasonable valuations to maintain their strong momentum.
Here are three AI stocks to consider buying for continued profits.
1. Nvidia
The momentum in the stock market has been driven by the Magnificent Seven, a small number of mega-capitalization technology stocks that are leading the way in AI with their dominant business models and deep pockets.
One of them is a chip company Nvidia (NASDAQ:NVDA), one of Wall Street’s best performers, soaring 222% over the past 12 months. Normally you wouldn’t buy a stock after a rally like this, but Nvidia’s accelerated growth driven by demand for AI chips could be unprecedented.
How often does a company that already has billions of dollars in revenue accelerate to triple-digit growth rates? But that’s exactly what Nvidia did.
More importantly, this momentum is likely to continue. The company holds the largest share of the AI chip market, which could grow to more than $400 billion in the next few years.
Nvidia’s H100 and H200 chips are not only the go-to hardware for building AI computers, but also target the custom chip market, targeting companies that might design and build their own AI chips. We are also aiming for
Analysts expect the business to grow earnings at more than 42% per year, which makes it very reasonable to pay the stock’s forward P/E ratio of 35x. means. To be sure, investors who have already made big profits could take profits. Still, NVIDIA’s outlook is that any pullback represents a great long-term buying opportunity.
Since there’s no telling how high a runaway stock with such strong fundamentals will rise before it falls, buying a little at a time may be the best strategy.
2. Super microcomputer
Like Nvidia, super microcomputer (NASDAQ:SMCI) is experiencing rapid growth and its share price moves so quickly that investors may have a hard time understanding it.
The stock has increased 751% in the past year alone. But as we’ll soon see, the unprecedented tailwinds in AI justify these huge advances. Super Micro Computer sells modular server systems. This means customers can purchase turnkey, state-of-the-art servers without having to design and build such systems themselves.
The company was founded in 1993 and has reached new levels of growth by moving to cloud computing and now AI. The company recently announced its fiscal 2024 second quarter earnings. Revenue was $3.66 billion, an increase of 103% year-over-year, and an increase of 73% from the previous quarter.
This is rapid growth for a multibillion-dollar company, with management aiming for more than 200% year-over-year growth in the third quarter.
When earnings are doubling like this, it’s not unpleasant to see the stock price doing the same. Analysts are expecting big things from Super Micro Computer, predicting earnings to grow at an average annual rate of 37%. With a forward P/E of just 34x and a price-to-earnings ratio (PEG) of less than 1, this high flyer becomes a potential bargain if performance like this continues.
3. Metaplatform
Another Magnificent Seven stock rounds out this list.social media company meta platform (NASDAQ:Meta) Up 163% in the past year.
There’s also a lot going on with AI, but the meta is more of a story of advertising struggles and redemption from overspending if it falls out of favor with Wall Street in 2022. Since then, the meta has rebounded and costs have been reduced. It has been re-established as a cash cow.
Meta, which owns social media apps Facebook, Instagram, and WhatsApp, continues to gain users. Total viewership grew to 3.98 billion monthly active users as of the fourth quarter, an increase of 6% compared to 2022.
Sales increased 25% year over year, and management paid its first-ever dividend. This shows that the company is confident that it can share more profits with investors while investing for long-term growth.
Since Meta was born from a very low position in 2022, the impressive rise in the stock price has not yet made the stock all that expensive. The company trades at a forward P/E ratio of 23 times, which is reasonable for a blue-chip business that analysts believe will grow profits by nearly 20% annually over the long term. Metaplatform stock looks like it could be a buy-and-hold option in 2024.
Should you invest $1,000 in Nvidia right now?
Before buying Nvidia stock, consider the following:
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Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Justin Pope has no position in any stocks mentioned. The Motley Fool has a position in and recommends MetaPlatform and Nvidia. The Motley Fool recommends Super Micro Computers. The Motley Fool has a disclosure policy.
“History Says the Nasdaq Will Rise in 2024: 3 Artificial Intelligence (AI) Stocks to Buy Before It Happens” was originally published by The Motley Fool.
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