It's beginning to look a lot like Christmas for tech investors.
After surging 54% last year, the Nasdaq 100 is already up another 4%, paced by the usual suspects. Nvidia (NVDA 6.18%) has jumped 41% so far, maintaining its blistering pace from 2024, and Meta Platforms, another big winner last year, is up 33%.
The strong start is the latest evidence that investors are living through another iteration of the dot-com boom when the Nasdaq Composite jumped 582% from the start of 1995 to its peak in March 2000.
One well-regarded tech analyst has called the new tech boom multiple times, touting that "It's 1995." That's Wedbush's Dan Ives. At least since last June, Ives has said we're in another 1995 moment, explaining in a recent post on X: "In my opinion we are on the doorstep of an internet moment with AI that will transform tech forever. Will change the growth trajectory of the tech sector."
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Is Ives right about the AI boom?
The internet is one of the most important transformational innovations in history, and in a generation it has reshaped the way we communicate, entertain ourselves, work, and shop.
It would be a tall task for any new technology to achieve a similar transformation, but many of the top tech CEOs believe that artificial intelligence (AI) could be equally transformative, if not more so. Oracle co-founder and CTO Larry Ellison, who has been in the industry since the early days of the computer, said: "Is generative AI the most important new computer technology ever? Probably." Tesla CEO and tech visionary Elon Musk has said that AI has the potential to be the most disruptive force in history, and Microsoft (MSFT 1.82%) co-founder Bill Gates called AI the most revolutionary technology in decades
In addition to the forecasts from tech's biggest luminaries, it's also clear that analysts can't keep up with the soaring growth from companies like Nvidia, which has surged past expectations in every quarter since the launch of ChatGPT.
The current predicament in the tech industry offers further evidence that the AI boom is only just starting. Nvidia's revenue and profit have surged in spite of a shortage of its products. There is more demand than the company can fill, and hyperscalers, start-ups, and others need its processors to run the powerful models required for generative AI.
It will be hard to judge the potential of AI until every company that wants the necessary infrastructure has it, but demand is clearly surging right now.
3 top stocks to buy for a new AI boom
Billionaire investor George Soros famously advised, "When I see a bubble forming, I rush in to buy."
It might be too early to call the rally in AI stocks a bubble, but the most obvious plays are often the best ones in these situations, much like stay-at-home stocks such as Zoom Video Communications and Peloton were big winners in the early stages of the pandemic.
By that same logic, Nvidia still looks like a good choice in the AI revolution. The stock's gains over the past year aren't built on air. Its profit has soared because its technology is in high demand, and its processors are well ahead of the competition. While some expect that gap to close, there are also signs competitive dynamics could move in the opposite direction as Nvidia presses its competitive advantage. For instance, it unveiled new AI PC chips in January, threatening to take market share in a category that Intel has long led.
Nvidia also seems well priced, trading at a price-to-earnings (P/E) ratio of just 33 based on this year's earnings estimates. If the company can exceed that target, the stock will surely move higher.
Microsoft looks like another easy AI stock to own. While the company doesn't have the same direct exposure to AI demand that Nvidia does, it seems to be the company that's best positioned to benefit from AI in a diverse set of ways. Its partnership with OpenAI has already paid off significantly as its AI-based Copilot is in programs such as Azure, Office 365, Bing, and GitHub. The company said on its recent earnings call that AI was responsible for six additional percentage points of growth, helping it outpace its competition, and it now has 53,000 Azure AI customers.
Microsoft's early lead also ensures that its highly profitable core product will remain relevant and in demand, helping to block out potential competition.
Finally, Super Micro Computer (SMCI 8.89%) is the third AI stock worth buying for a new tech boom. Like Nvidia, Supermicro has found itself in the envious position of making hardware that helps run AI-based models like those that ChatGPT uses. Supermicro makes server and storage equipment that's in high demand in the AI revolution, driving revenue up 103% in its most recent quarter, and the company is currently supply constrained since it relies on Nvidia chips, meaning that growth could be even stronger.
Like Nvidia, Supermicro is also profitable and trades at a reasonable forward P/E of just 31. Those estimates could easily move higher if supply improves.
If Ives is right and this is 1995, then there should be plenty of winners in the AI boom. Investors are best off focusing on stocks that are solidly profitable and already clearly benefiting from AI.
