The Nasdaq-100 index is home to 100 of the largest publicly listed technology companies on the Nasdaq exchange. As a result, it's often used as a barometer for the tech sector's performance. It has surged 40% so far in 2023, marking a powerful recovery after its 33% plunge last year.
But historical data suggests the index could continue to climb for the remainder of 2023. Since 1986, the Nasdaq-100 has only slumped in consecutive years on one occasion: during the dot-com tech bust from 2000 to 2002. After its other three annual declines -- in 1990, 2008, and 2018 -- the index immediately bounced back with a positive gain the very next year.
That bodes really well for 2023, but it gets even better. The average return in those rebound years was 52%. Given that the Nasdaq-100 is only up 40% in 2023 so far, that suggests there's potentially more upside on the table.
Since artificial intelligence (AI) has been the dominant theme in the technology sector this year, stocks in that space might continue following the lead of the broader market. Read on to learn about two AI stocks that investors will want to own if the Nasdaq-100 continues to ascend.
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1. Opera
Opera (OPRA -1.91%) stock has surged by a whopping 288% this year, making it one of the best performers in the entire market, let alone the AI niche. The Norway-based company has developed a web browser with built-in AI tools to transform the way users interact with the internet, and not only is the company delivering solid growth, but it's also profitable.
The Opera browser is equipped with a crypto wallet, VPN, messaging service, and an ad blocker. Those features are typically only available on mainstream browsers like Alphabet's Google Chrome through third-party plugins, making Opera one of the most feature-rich products on the market. But its AI tools take it to a whole new level for its 319 million monthly active users.
Opera has built its own generative AI chatbot called Aria, which can create social media posts and hold discussions with the user to answer even the most complicated queries. But Opera also has a partnership with OpenAI, which means Aria is joined by the world's most advanced and widely used chatbot, ChatGPT. These tools can substantially boost users' productivity, and it reduces their need to visit third-party search engines, which means they spend more time on Opera.
That's key because the company generates revenue from advertising, which means the more time users spend in the Opera ecosystem, the more money it makes. In the first quarter of 2023 (ended March 31), Opera's revenue increased 21% year over year to $87 million. But its profitability surged -- adjusted EBITDA almost tripled, and free cash flow more than doubled.
That's because the company is spending money more cautiously amid the tough economic environment, particularly on marketing. It's part of a strategy to acquire users that monetize at a higher rate, rather than focusing on outright user growth. In Q1, Opera's average revenue per user was hovering near an all-time high. Over the past four years, it has grown by a whopping 174% for users in developed markets, which is underpinning the company's financial success.
Despite the 288% gain in Opera stock this year, the company is still only valued at $2.1 billion. And based on its $390 million in expected revenue this year, it has a forward price to sales (P/S) ratio of just 5.3. That's absurdly cheap relative to other AI companies like Nvidia, which sports a forward P/S ratio of 24.5.
As a result, Opera stock has the potential to soar even higher in the remainder of 2023, especially if the Nasdaq-100 continues to climb.
2. C3.ai
Opera's 2023 gain might be impressive, but C3.ai (AI 3.02%) stock isn't far behind with a jump of 255%. But C3.ai might have a far broader opportunity given it pioneered a brand-new field called enterprise AI. The company has developed a portfolio of more than 40 ready-made AI applications that it sells to 287 corporate customers across over a dozen different industries, from financial services to manufacturing to energy.
Developing a ground-up AI strategy isn't realistic for the average company, so outsourcing the technical work to a provider like C3.ai makes sense. For example, a bank might find value from the C3.ai Smart Lending application, which is designed to streamline loan approvals by using AI to analyze mass volumes of data quickly. The company says Smart Lending reduces time to approval by 30%, while its AI-generated loan approvals are 98% accurate to date.
Oil and gas companies, on the other hand, are using C3.ai's technology for predictive maintenance and to reduce carbon emissions. Fossil fuel giant Shell has deployed over 100 applications that monitor thousands of items of equipment, preventing potential failures before they result in environmental catastrophes. Shell also uses AI to improve asset performance; it's reducing carbon emissions by 355 tons per day at just one of its liquefied natural gas facilities, which is the equivalent of taking 28,000 cars off U.S. roads for a whole year.
Investors have sent C3.ai stock soaring this year on the back of the AI frenzy even though the company's revenue growth has slowed to just 5% in fiscal 2023 (ended May 31). It's in the middle of an important transition away from subscription-based pricing, which often involves a slow negotiation process. Instead, it's moving to consumption-based pricing to allow customers to join C3.ai quickly and easily by only paying for what they use.
It's going to take time for customers to scale up their usage, but the company believes this new strategy could bring its revenue growth back up to 20% in the current fiscal 2024 year. On that note, based on C3.ai's expected $320 million in fiscal 2024 revenue, its stock trades at a forward P/S ratio of 14.2.
While that's more expensive than Opera, C3.ai thinks its addressable market could be worth a whopping $791 billion by 2026, so it has barely scratched the surface of its opportunity. Plus, C3.ai stock remains 75% below its all-time high after a brutal sell-off throughout 2021 and 2022, so it's still in the early innings of a recovery that could deliver even greater long-term gains ahead.
Further strength in the Nasdaq-100 could provide the sentiment boost that investors need to keep both Opera and C3.ai shares moving higher this year.
