It's official: A new bull market is here. And part of the reason for that is the rise of artificial intelligence (AI).
This roundtable panel of Motley Fool contributors agrees that AI stocks will lead this new bull market. But will the AI stocks that led the market out of the doldrums and toward the recent highs be the same stocks that will carry the bull market forward? Or will new AI stocks emerge as market leaders? See why Amazon (AMZN +2.33%), Meta Platforms (META +1.71%), and Nvidia (NVDA +1.80%) are top picks now.
Image source: Nvidia.
Amazon stands to benefit from the growth of AI
Jake Lerch (Amazon): I think 2024 will see a massive transformation for AI, and that's why I'm picking Amazon as the AI stock that will lead this new bull market.
NASDAQ: AMZN
Key Data Points
In short, the commercialization of AI is just starting. Relatively few AI products are available right now, but that's changing rapidly. Microsoft is now offering AI-powered Copilot features in its Office software, CrowdStrike's security modules utilize machine learning to prevent hacking, and Adobe has several multimedia tools that use generative AI. Countless other AI-driven products will soon be available for retail and enterprise customers.
Amazon, the world's largest cloud services provider and the world's largest e-commerce company, should benefit in several ways:
- Cloud spending could accelerate as businesses ramp up spending on generative AI, which runs on the cloud. And, crucially, cloud spending is one of Amazon's fastest-growing revenue sources.
- E-commerce spending could get a boost from the rise of AI-driven digital marketing, known as programmatic advertising, which helps advertisers serve better and more targeted ads. More e-commerce spending should lead to higher revenue for Amazon.
- Robotics innovations could lead to massive cost savings. Amazon is already America's second-largest employer, with over 1.5 million employees. However, it already uses over 750,000 robots in its sprawling warehouse network. Expect more robots -- run by AI -- going forward; that could lead to higher profits for Amazon.
Amazon's enormous scale -- and the diversified nature of its business model (primarily split between e-commerce and the cloud) -- means the company will capture additional revenue as AI technology matures. Moreover, the company's own AI innovations and outside robotics advancements could help the company become more efficient, meaning bigger profits for the company and bigger returns for Amazon shareholders.
This stock is up over 300% and could continue to soar
Justin Pope (Meta Platforms): The social media giant and AI innovator is an obvious pick to lead the new bull market because it's already doing it. The stock bottomed at roughly $90, along with the broader market, in late 2022. It's rallied over 300% since then.
NASDAQ: META
Key Data Points
Remarkably, Meta Platforms is arguably still undervalued today. The company found itself in Wall Street's dog house when advertising struggles amid iPhone software changes and frivolous spending cratered Meta's free cash flow between mid-2022 and early 2023.
META Free Cash Flow data by YCharts
The remedy? CEO Mark Zuckerberg aggressively cut expenses and leaned in to AI to counter Meta's iPhone privacy headwinds and get the company's financials back on track. Now, analysts are optimistic again about Meta's future, estimating a 20% long-term average annual earnings growth rate.
That's an enticing 1.1 PEG ratio, based on the stock's forward P/E of only 22. In other words, Meta's stock was so beaten down at its low that shares are still a bargain despite their meteoric rebound.
As long as Meta continues performing and can meet analyst estimates, the stock is poised to help lead this new bull market.
Investors should not forget the AI chip leader
Will Healy (Nvidia): When it comes to AI stocks, one might think they missed out on Nvidia. The semiconductor stock rose by almost 240% in 2023, and with it rising an additional 25% so far in 2024, one might assume its run will plateau in the near future.
Don't be so sure.
AI-capable chips are essential to supporting the technology, and late last year, a Raymond James analyst estimated Nvidia controlled more than 85% of the generative AI accelerator chip market. Admittedly, that success has attracted competitors. Companies such as Advanced Micro Devices and Intel have taken notice and seek to take away some of that business with their own lines of AI chips.
Nonetheless, with Nvidia's market lead, these companies will probably struggle to challenge its dominance in the near term. Moreover, Allied Market Research estimates a 38% compound annual growth rate in the AI chip market through 2030.
NASDAQ: NVDA
Key Data Points
Such a growth rate makes it easier for Nvidia to shrug off any potential competition, and seems to reinforce the optimism. In the first nine months of fiscal 2024 (ended Oct. 29), the company reported $39 billion in revenue, an 86% increase versus year-ago levels.
Over the same time frame, net income exceeded $17 billion, a huge increase from the $3 billion it earned during the same period in fiscal 2023.
Additionally, analysts forecast revenue will grow at 119% during the current fiscal year. Although it is likely to slow down, they predict revenue will rise by an additional 57% in fiscal 2025, indicating the rapid increases will continue.
Furthermore, thanks to the surge in net income, Nvidia's valuation has fallen significantly. Its P/E ratio had exceeded 240 as recently as July. Today, the earnings multiple stands at 81, and its forward P/E ratio has fallen to 50.
As long as net income continues to skyrocket, these multiples will likely decline further, making the burgeoning AI-driven opportunity in Nvidia stock a much safer choice.
