The AI capabilities of these companies may attract more attention as we approach the year's end.
Following the tech bull market ignited by advancements in generative AI in 2023, momentum persisted through the first half of 2024. Even considering the broader tech landscape rather than just the top performers, the Nasdaq Composite Index, heavily weighted in tech stocks, delivered a substantial total return of nearly 19%.
Given these trends, investors might ponder which stocks could lead in the latter half of the year. While the market offers no certainties, the upcoming quarters could see certain stocks gaining momentum. In this article, three Motley Fool contributors offer insights into stocks they believe warrant investors' attention for the rest of the year.
Alphabet is positioned to leverage its search-market dominance into AI riches
Jake Lerch selects Alphabet (GOOGL 0.46%) (GOOG 0.58%), Google's parent company. He highlights Alphabet's blend of essential qualities for a top stock: strong potential exemplified by its artificial intelligence (AI) tools, and consistent financial performance.
Let's break down the potential of Alphabet, starting with its advancements in AI. Alphabet's latest AI-powered personal assistant, Google Assistant, offers a range of functionalities through voice commands:
- Setting timers, creating lists, and managing locations and passwords.
- Making calls, sending texts, and reading emails aloud.
- Providing local information like weather, traffic, and directions.
- Answering general knowledge queries and performing calculations.
- Playing music, movies, or podcasts.
Additionally, Alphabet leverages its massive user base through Google, the world's most visited website, handling over 8.5 billion searches daily — nearly one per person globally. This positions Alphabet to establish Google Assistant as a leading AI assistant. This strategic move could yield significant future benefits as Alphabet explores monetization avenues, including subscription models for premium features or advertising partnerships where companies pay for product recommendations.
Meanwhile, Alphabet maintains stability and growth through established ventures like Google Cloud, YouTube, and Android, which consistently contribute to its profitability.
In summary, Alphabet emerges as a compelling AI investment heading into the latter half of 2024 and beyond. With a blend of innovation potential and reliable performance, Alphabet stands out as a prime consideration for investors seeking a robust stock in the AI sector.
Meta stock isn't done riding the AI wave
Justin Pope highlights Meta Platforms' (META 0.09%) remarkable stock performance, with shares climbing 45% since January and a staggering 326% since January 2023, coinciding with AI's rise. Despite skepticism about sustainability, Meta's strong fundamentals suggest it could maintain momentum through the latter half of the year. Its core business, advertising to billions via platforms like Facebook, Instagram, and WhatsApp, continues to grow, with daily active users reaching 3.24 billion in Q1, up 7% year-over-year.
Digital advertising's increasing dominance over traditional media like television and print is benefiting Meta Platforms (META 0.09%). In Q1, Meta saw a 20% year-over-year increase in ad volume, supported by a 6% rise in ad prices due to AI-driven efficiency improvements. These factors bolster Meta's core business significantly.
Looking ahead, investor sentiment hinges on Meta's continued performance. Analysts are optimistic, forecasting 2024 earnings-per-share at $20.16, marking a 35.5% growth from 2023. Further, analysts expect Meta to achieve annual earnings growth exceeding 19% over the next three to five years, underscoring its robust growth prospects. With a forward P/E ratio of 25, Meta's stock valuation appears attractive relative to its growth potential.
Despite its remarkable ascent and potential moderation in future gains, Meta remains a formidable entity with strong momentum. Investors should consider the ongoing opportunities before making decisions, as Meta continues to navigate its post-2022 resurgence with vigor.
AI chip space, a rising tide could lift AMD
Will Healy from Advanced Micro Devices (AMD -2.79%) suggests that despite Nvidia's dominant position in the AI chip sector, competitors like AMD have an opportunity. The AI chip industry, projected to grow at a 38% CAGR through 2032 according to Allied Market Research, shows potential. Nvidia's challenges in meeting current demand create an opening for AMD, known for its history of catching up to and sometimes surpassing competitors.
While Nvidia's AI chips are priced significantly higher at $30,000 to $40,000, AMD's offerings in the $10,000 to $15,000 range could attract customers eager to secure AI chips amid supply constraints.
In recent developments, AMD's Q1 2024 revenue of $5.5 billion grew modestly by 2% annually, but its data-center segment saw a remarkable 80% growth, reaching $2.3 billion and constituting 42% of total revenue. This parallels Nvidia's data-center revenue share at the end of fiscal 2022, which stood at 39%.
Looking ahead to Q1 of fiscal 2025, Nvidia generated 87% of its revenue from the data center segment, demonstrating the potential path for AMD as AI chips become a dominant revenue driver. Nvidia's recent 262% yearly revenue growth, largely fueled by AI chips, sets a precedent that AMD could aspire to, though potentially at a different scale.
Furthermore, AMD holds a notable valuation advantage with a price-to-book ratio around 4.5, contrasting sharply with Nvidia's 63 times book value. This valuation discrepancy positions AMD as an attractive investment opportunity, particularly as AI chip sales gain prominence in its revenue mix.