The S&P 500 is up 23% this year after a tough performance in 2022 when it fell by 19%. The success of growth stocks has been a key reason why the broad index has been doing so well. And three of the best-performing ones in the S&P this year have been Nvidia (NVDA 6.18%), Meta Platforms (META 0.43%), and Royal Caribbean Cruises (RCL 2.27%). But can these scorching-hot stocks still be good buys heading into the new year?
1. Nvidia
Nvidia has been the biggest benefactor from the emergence of artificial intelligence (AI) this year. Demand for its AI chips has been through the roof, and data-center revenue has been flourishing as well. Last quarter, which ended on Oct. 29, the company posted record data-center revenue of $14.5 billion; it rose 279% year over year. Nvidia's overall sales of $18.1 billion were more than three times the $5.9 billion it reported a year ago.
Given its strong results, it may not be surprising that the stock itself more than tripled in value this year. The big question for investors, however, is whether this still is a good buy heading into 2024. At around 65 times earnings, the stock has an inflated valuation.
I believe next year may be a tougher one for the markets, and companies may scale back on their spending due to a potential recession, which could lead to a slowdown in Nvidia's customers ramping up their AI offerings. For that reason, I wouldn't be surprised if Nvidia's stock falls in value in 2024.
But as long as you're willing to hold on to the stock for the long haul, it can still make for a great investment. Analysts from Gartner project that the demand for AI chips could double by 2027. And with Nvidia being the big name in AI chips, and helping businesses automate their operations and get into the cloud, it can still be a top growth stock to buy and hold in the years ahead.
2. Meta Platforms
Shares of Meta Platforms are up 180% since January. Investors have become more bullish on the business amid a stronger ad market. But that too could come under pressure next year. While there is the hope that interest rates decline next year and there is a soft landing for the economy, the potential for a worse-than-expected recession could throw a wrench into Meta's growth. And while the company did achieve 23% revenue growth last quarter (period ended Sept. 30), that isn't typical for the business.
META Revenue (Quarterly YoY Growth) data by YCharts.
I'm not optimistic Meta can maintain this level of revenue growth. Meanwhile, its metaverse business, Reality Labs, continues to cost the company billions in earnings. While there's a lot of hype surrounding Meta's business this year, I think it may be approaching a peak.
At around 31 times earnings, this isn't a stock I'd consider buying for next year as its valuation is too pricey given that its surge in growth may not be sustainable, and there are still the losses relating to Reality Labs to worry about. Those factors could hinder the stock's performance in the future.
3. Royal Caribbean Cruises
The cruise industry has been recovering this year. With no more lockdowns and travel restrictions no longer a concern, Royal Caribbean Cruises stock has been one of the hottest stocks to own this year, soaring by 150%.
Through the first nine months of the year, the company reported revenue of $10.6 billion, up 69% from the previous year. Royal Caribbean is also back to posting profits, with its bottom line during that stretch totaling $1.4 billion compared to a loss of $1.7 billion in the same period in 2022.
While the stock looks expensive at a price-to-earnings multiple of 37, with Royal Caribbean still in recovery mode, its earnings numbers should continue to improve. This is one of the stocks that I think could still do well in a potential downturn next year as cruises cater to an older, more affluent customer base, which could provide some much-needed resiliency for investors.
With oil prices also coming down, which should help improve profitability, and demand still looking strong, Royal Caribbean's stock could continue to be a great buy heading into next year.
