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It’s official: A new bull market has arrived. Part of the reason is the rise of artificial intelligence (AI).
This roundtable of Motley Fool contributors agrees that AI stocks will lead this new bull market. But are the AI stocks that led the market out of the doldrums and toward recent highs the same ones that will lead the bull market going forward?Or will a new AI stock emerge as the market leader? See why Amazon (AMZN 0.87%), meta platform (meta 0.24%)and Nvidia (NVDA -0.95%) Now it’s a top pick.
Image source: Nvidia.
Amazon stands to benefit from AI growth
Jake Larch (Amazon): I think there will be a big revolution in AI in 2024, which is why I chose this problem. Amazon As AI stocks lead this new bull market.
In other words, the commercialization of AI has only just begun. There are relatively few AI products available today, but that is changing rapidly. microsoft now offers AI-powered Copilot capabilities in its Office software. cloud strike‘s security module uses machine learning to prevent hacking. adobe has several multimedia tools that use generative AI. Countless other AI-powered products will soon be available to retail and enterprise customers.
As the world’s largest cloud service provider and the world’s largest e-commerce company, Amazon should benefit in several ways:
- Cloud spending could accelerate as companies increase spending on generative AI running in the cloud. And importantly, cloud spending is one of Amazon’s fastest growing revenue streams.
- The rise of AI-powered digital marketing, known as programmatic advertising, could increase e-commerce spending.This allows advertisers to serve more relevant and targeted ads. More spending on e-commerce should lead to more revenue for Amazon.
- Innovations in robotics can lead to significant cost savings. Amazon is already the second largest employer in the United States, with more than 1.5 million employees. But the company already uses more than 750,000 of his robots in its vast warehouse network. We can expect to see more robots run by AI in the future. That could lead to increased profits for Amazon.
Amazon’s massive scale, and the diverse nature of its business model (split primarily between e-commerce and cloud), means the company will capture more revenue as its AI technology matures. Additionally, the company’s own AI innovations and external robotics advances could help the company become more efficient, which could mean higher profits for the company and higher returns for Amazon shareholders. Masu.
This stock is up over 300% and could continue to rise
Justin Pope (Metaplatform): The social media giant and AI innovator is clearly suited to lead the new bull market. Because they are already practicing it. The stock, along with the broader market, bottomed out at around $90 at the end of 2022. It has risen more than 300% since then.
Surprisingly, metaplatforms are probably still undervalued even today. From mid-2022 to early 2023, when Meta’s free cash flow plummeted due to iPhone software changes and advertising struggles due to frivolous spending, the company found itself in the doghouse of Wall Street.
META Free Cash Flow Data by YCharts
What is the treatment? CEO Mark Zuckerberg aggressively cut costs and pivoted to AI to counter Meta’s iPhone privacy headwinds and get the company’s finances back on track. Now, analysts are once again optimistic about Meta’s future, estimating long-term average annual earnings growth of 20%.
This is an attractive PEG ratio of 1.1, given the stock’s forward P/E ratio of just 22x. In other words, Meta’s stock was hit so hard at its lows that despite the meteoric rebound, the stock is still a bargain.
As long as Meta can continue its performance and meet analyst expectations, the stock is poised to lead this new bull market.
Investors should not forget the AI chip leader
Will Healy (NVIDIA): When it comes to AI stocks, some might think Nvidia is a miss. With semiconductor stocks up about 240% in 2023 and another 25% so far in 2024, one might think that stock price gains will plateau in the near future.
Don’t be too sure.
AI-enabled chips are essential to support the technology, and late last year raymond james Analysts estimate that Nvidia controls more than 85% of the generative AI accelerator chip market. Indeed, its success has attracted competitors.companies such as Advanced Micro Devices and intel Companies have realized this and are trying to take some of that business with their AI chip products.
Nevertheless, with Nvidia leading the market, these companies will likely have a hard time challenging its dominance in the short term. Additionally, Allied Market Research estimates the AI chip market to have a compound annual growth rate of 38% through 2030.
Such growth rates seem to make it easier for Nvidia to shake off potential competitors, reinforcing optimism. In the first nine months of fiscal 2024 (ending October 29), the company reported revenue of $39 billion, an 86% increase from the previous year.
Net income for the period was more than $17 billion, a significant increase from $3 billion for the same period in fiscal 2023.
Moreover, analysts predict that its revenue will grow 119% for the current fiscal year. Although it is likely to slow down in the future, sales are forecast to increase by a further 57% in fiscal 2025, indicating that rapid growth will continue.
Additionally, Nvidia’s valuation has fallen significantly due to the sharp increase in net income. The company’s P/E ratio was over 240 times as of July. Currently, his earnings multiple is 81x, and his forward P/E ratio has dropped to 50x.
As long as net income continues to soar, these multiples will likely fall further, making the fast-growing AI-driven opportunity in Nvidia stock a safer bet.
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. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Jake Lerch has held positions at Adobe, Amazon, CrowdStrike, and Nvidia. Justin Pope has no position in any stocks mentioned. Will Healy has held positions at Advanced Micro Devices, CrowdStrike, and Intel. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Amazon, CrowdStrike, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends 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.
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