The year 2023 was quite impressive for the U.S. stock market, with the S&P 500 and the Nasdaq Composite indexes posting returns of 24% and 43%, respectively. A major part of this bull rally can be attributed to the strong performance of artificial intelligence (AI) and other related stocks.
AI is far more than a passing trend and marks a transformational technology in today's world. Its relevance as a major investment theme persists in 2024.
Against this backdrop, here's why high-quality AI-powered stocks such as Nvidia (NVDA 0.26%), Super Micro Computer (SMCI +3.94%), Snowflake (SNOW 0.64%), Palantir Technologies (PLTR +0.41%), and UiPath (PATH 0.14%) can prove to be smart buys in 2024.
Nvidia
An undisputed leader in the AI market, Nvidia's GPUs, CPUs, networking technologies, and software offerings are being used extensively by data centers to upgrade their infrastructure for AI workloads.
NASDAQ: NVDA
Key Data Points
CEO Jensen Huang expects data centers to spend nearly $1 trillion in capital expenditures for transitioning from CPU-based infrastructure to GPU-based infrastructure, necessary for high-performance computing, machine learning, and AI workloads. Nvidia seems positioned to capitalize on this opportunity, with cutting-edge AI chips and a Compute Unified Device Architecture (CUDA) software stack used by nearly 4 million developers to optimally program these chips. The company also accelerated the pace of new data center chip architecture releases from every two years to annually.
After a lackluster performance in the past few quarters, Nvidia is seeing strength in the gaming business driven by the availability of Nvidia RTX retracing and AI technologies at low price points. The increasing prevalence of esports is also a major growth driver for the company's gaming chips.
Considering these tailwinds, despite trading at 34 times trailing 12-month sales, Nvidia's strong position in the AI market makes it a potentially wise investment choice in 2024.
Super Micro Computer
Super Micro Computer, excelling in high-end server and storage systems, benefited dramatically from the increasing demand for its AI platforms, especially the large language model (LLM)-optimized HGX-H100 solutions (which contain multiple H100 chips interconnected with cutting-edge networking technologies). Many hyperscalers and cloud service providers also demand direct-attached cold-plate liquid-cooling solutions with the server systems to address the high power costs and thermal challenges associated with deploying power-hungry AI workloads. The company's modular, energy-efficient, and scalable solutions helped set it apart from competitors focused on mass-producing servers.
Supermicro's collaborations with major chip players such as Nvidia, Advanced Micro Devices, and Intel further ensured early access to advanced AI chips, giving the company a distinct competitive advantage. By sending solutions earlier to customers, Super Micro helps customers to make decisions earlier -- translating into incremental revenue opportunities for the company. All these positives make Supermicro a compelling pick for 2024.
Snowflake
Snowflake, a cloud-native data platform, helps multiple organizations such as Salesforce, ServiceNow, Workday, and SAP manage, store, and analyze vast amounts of structured and unstructured data from a wide range of diverse sources and formats. This capability plays a major role in giving organizations a comprehensive view of the data landscape and running complex AI algorithms and models.
NYSE: SNOW
Key Data Points
A key advantage for Snowflake is its ability to process unstructured and streaming data. Over 30% of its customer base is working with unstructured data, leading to a 17 times increase in unstructured data consumption year over year in October 2023. A new data streaming feature, Dynamic Tables, already attracted 1,500 customers, with more expected to adopt it in the coming months. Furthermore, Snowflake's data marketplace, a major part of its data cloud platform, allows organizations to access and share data sets, thereby enriching their own data with additional insights and context. This further improves the outcomes of their AI models. The data-sharing feature created a strong network effect and a sticky customer base -- which are major positives in the current uncertain economic environment.
Palantir Technologies
Shares of data analytics company Palantir surged an impressive 167% in 2023, a marked recovery from the 65% decline in 2022. The company's platform is well known for its exceptional ability to analyze large data sets for government and commercial clients utilizing advanced AI and machine learning algorithms.
Recently, Palantir launched an innovative Artificial Intelligence Platform (AIP) that combines its core machine learning capabilities with the power of advanced large language models, allowing customers to improve productivity and operational efficiency. The company also launched an innovative go-to-market strategy called AIP Bootcamp, which allows clients to test its platforms with real workflows in five or fewer days. A significant change from the traditional pilot strategy, AIP Bootcamps allow for faster negotiation and customer wins.
Palantir is already positive according to generally accepted accounting principles (GAAP), a solid strength for a high-growth company. This is why the company seems to be a smart buy now.
UiPath
Leading robotic process automation player UiPath helps businesses automate routine and mundane tasks, thereby helping them improve enterprise productivity and cost efficiencies. The company is also leveraging AI technologies to drive automation for even more complex and nuanced tasks.
NYSE: PATH
Key Data Points
UiPath's focus on industry verticalization, or developing tailored automation solutions for specific industries, has been a key competitive strength. The company invests in playbooks, marketing events, and enablement programs to help its support teams better understand the unique needs and challenges of various industries, helping them deliver targeted solutions to their customers. All this has translated into a rapid expansion in the customer base and a successful cross-selling strategy. With a portfolio of innovative offerings and a robust marketing strategy, UiPath may prove to be an intriguing investment for 2024.
