No doubt about it: Nvidia owned the first half of 2023. Shares skyrocketed higher by 190%, making it the top-performing stock in the Nasdaq 100.
Yet, as we head into the back half of the year, there are challengers on the horizon. So, let's look at three stocks that these Motley Fool contributors believe are poised to capture headlines in their own right: Advanced Micro Devices (AMD 1.78%), SoFi Technologies (SOFI -10.48%), and Palo Alto Networks (PANW 0.68%).
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Nvidia is No. 1, but AMD aims to close the gap.
Jake Lerch (Advanced Micro Devices): Up 77% year to date, AMD stock is already enjoying a fantastic start to 2023. And there's cause for even more optimism about the company. AMD's new MI300X graphics processing unit (GPU) is the biggest reason why.
The MI300X, which the company says will ship to customers later this year, represents a direct threat to Nvidia's dominance of the artificial intelligence (AI) chip market. That's because the large language models behind popular AI programs like ChatGPT rely on accelerators that must store and process tens of billions of parameters.
Nvidia's H100 chip -- often the most sought-after for running AI programs -- has 120GB of memory. AMD's new MI300X chip can have up to 192GB.
That means AMD's chip should find plenty of interest in the red-hot AI market. And since top-end AI chips can sell for more than $40,000, it's an understatement to say they are a lucrative business.
CEO Lisa Su expects the overall AI chip market to mushroom over the next several years, predicting that the data-center chip market will grow from around $30 billion today to over $150 billion by 2027. That helps explain why AMD's sales are expected to surge in the coming years despite a sluggish personal computer (PC) market. Indeed, analysts expect its sales to increase 19% in 2024 to $27.3 billion.
With the debut of its new AI-focused chip and the overall growth of the data center and AI markets, AMD looks like a stock worth owning for years to come.
Investors can bank on a student lender turned fintech
Will Healy (SoFi Technologies): Investors can't count out the growth prospects of SoFi Technologies thanks to its versatility. It showed this ability to adapt and thrive during the pandemic when the government paused what was then the company's primary source of revenue, student loans.
When that business went dormant, SoFi moved quickly to make itself over into a fintech-oriented bank. It bought Golden Pacific Bancorp, making it one of the few fintech banks to hold a bank charter. The company also acquired Galileo and Technisys to rebrand itself as the "Amazon Web Services of fintech."
As a result, SoFi offers end-to-end functionality that can support checking, savings, and credit cards. And with the purchase of Wyndham Capital Mortgage, it can support home loans in the same manner.
Other likely catalysts are the improving prospects in its student lending segment. The loan repayment pause is set to end soon, meaning that this part of SoFi's business will probably resume functioning as it did before the pandemic. That should dramatically increase demand for student loan refinancing and could serve as a massive tailwind for revenue growth.
Still, SoFi has managed to produce considerable revenue increases even with a largely dormant student loan industry. In the first quarter of 2023, it reported revenue of $472 million, rising 43% from year-ago levels.
The rise was partly a result of its growing customer base. Membership and product growth each rose 46%. As a result, SoFi now claims almost 5.7 million members who collectively have nearly 8.6 million products with the bank.
It also has inched much closer to profitability. First-quarter losses fell to $34 million versus $110 million last year. This may have helped its shares rise more than 80% since the beginning of the year, and the stock could have more room to run since it is down by almost two-thirds from its all-time high in 2021.
Even with that price increase, its price-to-sales (P/S) ratio is at 4.5. While not a record low, the stock sold for a P/S between 6 and 9 during the previous bull market, indicating it may rise further. As sales continue to grow and a primary business segment returns to normal, it could take SoFi to record highs and beyond.
Joining the S&P 500 could signal what's to come for Palo Alto
Justin Pope (Palo Alto Networks): Cybersecurity is crucial to worldwide enterprises today and should remain so. It's a ruthlessly competitive field packed with both large and small vendors.
Palo Alto Networks has been around the block; its 2005 founding precedes many of the shiny new names on Wall Street. But don't be fooled: Palo Alto can still pack a punch for your portfolio.
The company specializes in next-generation firewall security. A firewall is a security application that monitors traffic to and from a network. Think of it as a security guard at a nightclub who determines who gets in and who doesn't.
Palo Alto says that its firewall technology enables better control and flexibility for its customers. It is more effective, the company says, because it traces all traffic back to its specific user (instead of an IP address), making it harder to breach.
PANW revenue (TTM) data by YCharts. TTM = trailing 12 months.
It's not the fastest-growing tech stock, but it's a fundamentally strong business growing on a $6.4 billion revenue base. It's also profitable, turning nearly 42% of its revenue into free cash flow. So while some speculative companies hope to be profitable down the road, Palo Alto is stacking profits today and moving forward.
The stock is already up 84% in 2023, but the party could continue through the rest of the year. The company was invited into the S&P 500 index last month, which triggers buying activity as funds tracking the index must now work the stock into their weightings.
And analysts predict earnings will grow by an annual average of 31% over the next three to five years. At a price/earnings-to-growth (PEG) ratio of 1.9, the stock isn't cheap, but it is arguably reasonably priced for the growth that investors could see.
