In the stock market, certain patterns tend to repeat over the long term. Analyzing Nasdaq Composite data going back to 1971, it reveals that after a recovery year like the one in 2023, the tech-heavy index has risen by 19% every year. This trend suggests that 2024 could be an ideal year to buy stocks, especially as macroeconomic headwinds like inflation and high interest rates eventually start subsiding.
For investors looking to bet on this pattern continuing, AI-related companies like Nvidia (NASDAQ: NVDA) and Palantir Technologies (NYSE: PLTR) could be a great option. Let's discuss their growth catalysts for this year and beyond.
Nvidia had a spectacular bull run in 2023 and started 2024 with a bang, with its shares rising 24% in January. The company still enjoys widespread optimism about its fast-growing artificial intelligence (AI) chip business. Despite increasing competition, Nvidia is well-positioned to maintain its long-term advantages.
Nvidia currently holds over 80% market share in graphic processing units (GPUs) used for running and training AI applications. This has resulted in a surge in operational results, with third-quarter revenue jumping 206% year over year to $18.12 billion. Nvidia's dominance in the industry and the significant number of developers familiar with its hardware give it an economic moat.
While Advanced Micro Devices, Nvidia's longtime competitor, plans to launch its MI300x family of GPUs this year to tackle the AI chip opportunity, it is expected to generate only a fraction of Nvidia's revenue in the AI chip market. Nvidia's industry dominance and infrastructure advantage make it a strong contender.
With a relatively cheap forward price-to-earnings (P/E) multiple of 30, Nvidia's eyewatering growth rate makes it an attractive investment option. In comparison, the NASDAQ 100 has an average forward P/E of 29.
Similarly, Palantir is also experiencing a bull run, with its stock price up almost 140% over the last 12 months. The company's profitability and ambitious AI efforts have been driving its growth. While Palantir doesn't produce AI chips, it provides investors with an opportunity to bet on the adoption of AI technology in government agencies and the armed forces.
Palantir's moat stems from its track record of working on highly sensitive national security missions, such as assisting in tracking down Osama Bin Laden in 2011 and aiding the Ukrainian military during its war with Russia. To better serve clients, Palantir has developed its new Artificial Intelligence Platform (AIP), which combines legacy machine learning tools with large language models to provide real-time insights in time-sensitive scenarios.
Palantir's third-quarter net income increased from a loss of $123.9 million to a gain of $73.4 million, marking the company's first consecutive four quarters of profitability. Although Palantir's forward P/E of 58 makes it pricier compared to Nvidia, its new AI growth drivers have the potential to justify its valuation.
While both Nvidia and Palantir offer investors a way to bet on the continued growth and industry adoption of artificial intelligence tech, Nvidia remains the top pick for most investors. Nvidia's current performance and future potential fully justify the rally it has experienced. Palantir's respectable growth and push toward profitability are also encouraging, but its higher P/E multiple makes it a weaker value compared to Nvidia.
Before investing in Nvidia, it's important to consider other options as well. The Motley Fool Stock Advisor analyst team has identified what they believe are the 10 best stocks for investors to buy now, and Nvidia wasn't one of them. The Stock Advisor service provides investors with a blueprint for success, including guidance on building a portfolio and regular updates from analysts. It has significantly outperformed the S&P 500 since 2002.
Overall, the historical pattern suggests that the Nasdaq will surge in 2024, making it an ideal year to consider investing in AI stocks. Nvidia and Palantir are both strong contenders in this space, with Nvidia being the top pick for most investors due to its current performance and future potential.