The S&P 500 entered a bear market on June 13, 2022, after dropping more than 20% from its all-time high in January 2021. The index has risen 6% since that fateful day, but that's well below the 20% gain it needs to qualify as a new bull market.

It's unclear if a new bull market will start this year, but one of the hottest secular trends -- artificial intelligence -- could catch fire when it finally does. I believe these three AI-oriented tech stocks -- Microsoft (MSFT 0.11%), Nvidia (NVDA -0.01%), and Upstart (UPST 8.89%) -- could outperform the S&P 500 when that finally happens.

A digital brain hovers above a motherboard.

Image source: Getty Images.

1. Microsoft

Microsoft's stock dropped nearly 20% after hitting its all-time high in November 2021. Slower cloud spending in a more challenging macro environment, weaker growth of major revenue streams in a post-pandemic market, and intense currency headwinds all drove away the bulls.

Analysts expect its revenue and adjusted earnings to only grow 5% and 2%, respectively, in fiscal 2023, which ends in June. That's compared to Microsoft's 18% revenue growth and 16% earnings growth in fiscal 2022.

That slowdown is disappointing, but analysts also expect its revenue and earnings to rise 11% and 15%, respectively, in fiscal 2024. We should take those estimates with a grain of salt, but Microsoft's hefty investments in OpenAI -- the start-up that created the "generative AI" chatbot ChatGPT -- might help Microsoft reach those estimates.

Microsoft has already integrated ChatGPT into its search engine Bing and its Azure cloud infrastructure services, and will likely plug those tools into its Windows, Office, and Dynamics customer relationship management (CRM) services in the near future. Those integrations, along with waning macro headwinds for its core businesses, could easily drive the technology stock to fresh highs once a new bull market starts.

Its stock isn't cheap at 26 times forward earnings today, but investors could pay a much higher premium for Microsoft once it demonstrates how its AI-driven features can widen its competitive moat, accelerate long-term growth, and reduce operating expenses. 

2. Nvidia

Nvidia is the market leader in gaming GPUs, but its top-tier GPUs are also used by data centers to process complex AI tasks. All the most powerful generative AI algorithms -- including ChatGPT and Alphabet's Google Bard -- currently use Nvidia's GPUs. That makes it one of the best pick-and-shovel plays on the AI market.

However, Nvidia's stock has also declined about 20% since it hit its all-time high in November 2021. The bulls retreated as the chipmaker struggled with weak demand for gaming GPUs in a post-lockdown market, which was exacerbated by the COVID lockdowns in China, as well as softer sales of data center GPUs in a difficult macro environment. Declining cryptocurrency prices generated even more headwinds as disillusioned miners flooded the market with cheap secondhand GPUs.

Yet analysts still expect Nvidia's revenue and adjusted EPS to rise 10% and 34%, respectively, in fiscal 2024 (ending January 2025), which would represent an acceleration from its flat revenue growth and 25% earnings decline in fiscal 2023. That recovery should be driven by the stabilizing PC market, China's post-COVID recovery, and less intense macro headwinds. The intensifying land grab across the generative AI market could also significantly boost data center GPU sales.

Nvidia's stock might seem pricey at 57 times forward earnings, but it could maintain that premium valuation as the AI market grows. That's why I believe a fresh bull market could easily propel Nvidia's stock to new highs.

3. Upstart

Upstart is an online lending platform that approves loans for its lending partners by processing nontraditional data points -- including a customer's standardized test scores, GPA, area of study, and work history -- through its AI algorithms. That process enables lenders to reach a broader range of customers, especially those with lower incomes and limited credit histories who might otherwise be excluded by traditional credit scoring methods.

Upstart's business flourished when interest rates were low, since consumers were more likely to pursue new loans at low rates while its lending partners were willing to fund more loans. That's why its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) skyrocketed 264% and 636%, respectively, in 2021.

But that party quickly ended as rising interest rates caused consumers to take out fewer loans and its lending partners to offer fewer loans. As a result, Upstart's revenue dipped 1% in 2022 as its adjusted EBITDA plunged 84%. Analysts expect its revenue to drop another 34% in 2023 as its adjusted EBITDA turns negative. That's why its stock has plunged about 96% since it closed at its all-time high in October 2021.

But after that steep sell-off, Upstart's stock now trades at just 2 times this year's sales. If a new bull market starts as interest rates stabilize and cool off, its growth could accelerate just as abruptly as it decelerated. Therefore, this stock might still a potential multibagger for investors who can tune out all the near-term noise about rising interest rates.