of S&P500 It made a remarkable recovery last year, rising 24% in 2023 after falling 19% the year before due to the economic downturn. And even into the new year, the index shows no signs of slowing down.
The S&P 500 hit a new all-time high this month, closing at 4,840 on January 19th, officially entering bull market territory. A bear market is typically defined as a 20% decline from a recent high, ending when stocks regain that 20% and reach a new high. A bull market can be a great opportunity to prioritize stocks to grow your portfolio and drive most of its growth.
Last year’s rise in stock prices is thought to be largely due to the artificial intelligence (AI) boom. The announcement of OpenAI’s ChatGPT in November 2022 reignited interest in the technology and led countless companies to pivot their businesses to the budding market. Excitement about AI is likely to continue this year, showing that it’s never too late to make long-term investments in this space.
Here are two super-growth AI stocks to buy in 2024 and beyond.
1. Nvidia
Even though January isn’t over yet, Nvidia (NVDA 4.97%) is already up 24% year-to-date, after surging 239% in 2023. The company’s business has grown explosively over the past 12 months as its graphics processing units (GPUs) have become the go-to for AI developers around the world.
GPUs are essential for training and running AI models, and demand for these chips has skyrocketed in the last year. Nvidia, on the other hand, has over 80% market share in GPUs and is in a good position to supply hardware to most markets. A surge in chip sales drove Nvidia’s quarterly revenue up 200% and operating profit up 729% over last year.
The chip maker’s rapid growth has analysts questioning whether Nvidia can maintain its current growth rate, with some speculating that the overbought chip stock could fall sharply in 2024. But that’s why it’s important to keep a long-term perspective when investing. As Warren Buffett likes to say, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
According to Grand View Research, the AI market was valued at nearly $200 billion last year and is projected to reach well over $1 trillion by the end of 2020. The sector’s growth trajectory suggests that chip demand will continue to grow in the near term. As a result, Nvidia is likely to continue to make significant gains from its estimated 80%-95% market share in AI GPUs for years to come.
Data by YCharts.
EPS estimates are in line with Nvidia’s potential. This chart shows that the company’s profits could reach $24 by fiscal year 2026. Multiplying this number by the company’s forward price-to-earnings ratio (P/E) of 50 yields a stock price of $1,200, with 97% growth expected over the next two years.
As a result, it’s worth buying Nvidia now and holding it indefinitely. And if the stock price falls, it could be a great time to buy this super-growth stock on sale.
2. Alphabet
There are multiple ways to invest in AI, but semiconductor companies like Nvidia and hyperscalers are among the most attractive options.like a hyperscaler alphabet‘s (Google 0.86%) (GOOG 0.58%) google cloud, Amazon web services, and microsoftAzure is a large-scale cloud-based platform that provides compute and storage at enterprise scale.
These companies are investing in infrastructure to develop AI solutions and could leverage large cloud data centers to give them an advantage in the market. As a result, Alphabet’s prospects in the AI field have been strengthened, with Google Cloud gaining the third-largest market share in cloud computing.
Furthermore, in December last year, the company announced the long-awaited AI model “Gemini”. Alphabet expects this model to be able to compete with OpenAI’s GPT-4 and believes it can open up countless growth opportunities in AI.
With Gemini, the tech giant will create a search experience similar to ChatGPT, deliver more effective and cost-effective advertising, bring new AI tools to Google Cloud, and better understand viewing habits on YouTube. We’ll have the technology to track you. All of these could significantly boost Alphabet’s earnings in the coming years.
Advertising accounts for more than 80% of Alphabet’s revenue, so the potential for AI to power Alphabet’s digital advertising business is particularly promising. Gemini and the billions of users that products like Google, YouTube, and Android attract could be a lucrative combination.
Meanwhile, the company generated more than $77 billion in free cash flow last year, indicating it has the funds to continue investing heavily in AI and overcome potential headwinds.
Data by YCharts.
Additionally, this chart shows that Alphabet is currently one of the cheapest ways to invest in AI. The company’s forward P/E and price-to-free cash flow ratio are significantly lower than its biggest cloud rivals, Microsoft and Amazon. Alphabet’s low numbers on both valuation metrics suggest that the company’s stock offers better value than these tech companies.
Google may not be as advanced in its AI efforts as Microsoft or Amazon, but its stock may be worth buying cheap now and holding for the next 10 years. Along with large cash reserves and advanced AI technology, Alphabet is an exciting investment option to hold indefinitely into 2024.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Dani Cook has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
