The Nasdaq Composite posted a return of 43.4% in 2023, one of the few times that the index has seen such impressive single-year growth. A good portion of this growth can be attributed to the phenomenal performance of artificial intelligence-powered technology stocks that are a part of the index.
Artificial intelligence (AI) technologies are fast becoming integral parts of our daily lives through areas such as autonomous driving, claims processing, and telehealth. It's safe to say that AI is no passing fad, but a theme that will remain relevant for the upcoming decade. Coupled with increasing optimism for the U.S. economy and cooling inflation in 2024, many AI stocks may again rally in 2024.
This could propel another major surge in the Nasdaq Composite in 2024. That's why now may be a good time to open small positions in stocks such as Meta Platforms (META 0.43%) and Alphabet (GOOG 9.96%) (GOOGL 10.22%).
Meta Platforms
Shares of social media giant Meta Platforms gained around 220% in 2023 and have risen by an additional 8.8% so far in 2024. Although the company is currently trading near its 52-week high, there are still several reasons to like the stock in 2024.
First, Meta owns iconic social media platforms such as Facebook, Instagram, and WhatsApp, which together have around 3.96 billion monthly active users. Further, the company has been leveraging AI to recommend new content on feeds to add to incremental engagement -- a move that has resulted in a 7% increase in time spent on Facebook and a 6% increase on Instagram in the third quarter. Meta's large and highly engaged user base will be key to its efforts to remain a dominant player in the digital advertising space.
Second, Meta has been incorporating generative AI tools in its ads manager and Meta Advantage+ suite, after testing them in the company's AI sandbox. These tools help advertisers optimize and automate their campaigns, which results in improved ad performance and increased overall sales. These initiatives have been quite successful: Advantage+ Shopping campaigns have already reached a $10 billion run rate, while more than half of the advertisers on Meta's platforms have been using Advantage+ Creative tools.
Third, Meta has released multiple AI-powered products such as AI-driven vertical chatbots, Meta AI assistant, and AI Studio to improve user engagement and increase monetization. Meta AI assistant allows users to ask different answers and receive replies based on real-time information as well as to create images. AI Studio allows users to interact with multiple AI characters. Increasing adoption of these AI technologies could help expand the company's revenue base.
Fourth, business messaging could prove to be a major growth catalyst. Over 600 million conversations between businesses and customers take place through its social media platforms every day. Furthermore, more than 60% of people using WhatsApp in India message at least one business account every week. With revenue from click-to-message ads in India almost doubling year over year in the third quarter, business-to-consumer communication is presenting a new revenue opportunity for Meta.
Hence, considering its large user base, formidable position in digital advertising, the growth of business messaging, and the ongoing success of its AI initiatives in driving user engagement and advertising performance, Meta seems like a smart buy for 2024.
Alphabet
Alphabet, the company behind Google, YouTube, Android, and Chrome, accounts for nearly 39% of the global digital advertising market. Notably, in the third quarter the company saw a surge in advertising revenue, particularly from the retail sector on Google and from direct and brand-response advertising on YouTube. Moreover, the company is focusing on strengthening its core businesses in multiple ways.
Its flagship Google Search business accounted for a 91.6% share of the global search engine market in 2023, a decline from its 92.6% share in 2022. Although that market share decline is attributable to competition from Microsoft's generative AI-enhanced Bing search engine, Google remains a force to reckon with in the search space. YouTube subscription revenue also rose significantly thanks to the rapid expansion of the video-sharing platform's subscriber base.
Alphabet is also working to improve advertiser performance and profitability as well as the user experience on Google Search, by leveraging generative AI models through its SGE (Search Engine Experience) initiative, to deliver highly targeted, contextual, and relevant search results. The company has also included its most advanced large language model, Gemini, in SGE. It has also incorporated conversational experiences in Google Ads, introduced updates to AI-powered tools such as Performance Max, and offered new advertising formats and campaign types to further attract new advertisers and reach more users with its platforms.
The Google Cloud business raked in revenue of $8.4 billion in the third quarter, up 22% on a year-over-year basis. With its focus on allowing clients to opt for hybrid environments (using both on-site servers and public cloud infrastructure) and multi-cloud environments, Google Cloud works seamlessly with clients' on-premises infrastructure as well as with other public clouds. Today, nearly 60% of the world's largest companies use Google Cloud. Plus, Google Cloud AI services such as the Vertex AI platform and BigQuery ML service are also helping clients build, deploy, and scale AI-powered applications rapidly.
Based on Alphabet's rapid strides in the AI-driven digital advertising space and the increasing momentum of the Google Cloud business, Alphabet seems like a compelling buy now.
