The Nasdaq Composite is once again making all-time highs.
On March 1, the Nasdaq crested its old peak of 16,212, which it set back in 2021. Much of the credit for its new bull market should go to artificial intelligence (AI) stocks like Nvidia, which powered the index's recent climb.
But which AI stocks will lead the Nasdaq higher from here? Will it be chipmakers like Nvidia, or will others take their place as the pacesetters? We asked a panel of three Motley Fool contributors to tell us what they think. They suggest keeping an eye on CrowdStrike Holdings (CRWD 2.03%), Amazon (AMZN 3.43%), and Microsoft (MSFT 1.82%).
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CrowdStrike's superb leadership and stellar financials make it a company on the rise
Jake Lerch (CrowdStrike Holdings): My pick for a company that's likely to deliver outsized gains from here is CrowdStrike Holdings, and my reason for believing that is simple: Cybercrime is all over the news, and CrowdStrike is one of the few companies that can help change that.
What's more, the company, which operates cybersecurity platforms powered by machine learning and artificial intelligence, is firing on all cylinders financially.
In its most recently reported fiscal quarter (which ended Jan. 31), CrowdStrike blew away expectations.
- Revenue rose to $845 million, up 33% from a year ago.
- Annual recurring revenue increased 34% year over year to $3.4 billion.
- GAAP subscription gross margin climbed to 78%, up from 75% a year prior.
- Free cash flow increased to $283 million, up from $210 million a year prior.
In addition, the company raised guidance for its next quarter and the fiscal year. Co-founder and CEO George Kurtz doubled down on an important goal for the company: $10 billion in annual recurring revenue by 2030.
CRWD Free Cash Flow data by YCharts.
Given CrowdStrike's recent performance and the ever-increasing number of costly cyberattacks, Kurtz's goal of roughly tripling its annual recurring revenue by 2030 seems more achievable than ever.
That's why it's no surprise that CrowdStrike's stock is up 164% over the last 12 months. The company also ranks as one of the top Nasdaq-100 stocks of 2024: Its 29% year-to-date return puts it in the same neighborhood as market darlings like Meta Platforms and Advanced Micro Devices.
To sum up, this AI-powered cybersecurity firm just turned in another stellar quarter thanks to its innovative platform and its outstanding leadership. Its stock is helping drive the Nasdaq bull market forward, and growth-oriented investors would be wise to consider picking up shares.
AI has boosted productivity for nearly every segment of this retail and cloud powerhouse
Will Healy (Amazon): Amazon is a household name in e-commerce, and also in entertainment thanks to its Prime streaming service. However, this may mislead the average consumer about Amazon as a company.
True, online sales are its largest revenue source, but its North American and international segments include other enterprises such as subscriptions, third-party sellers, and advertising.
Despite making up only 16% of net sales, the majority of Amazon's operating income comes from its cloud segment, Amazon Web Services (AWS), which depends heavily on AI.
AWS applies generative AI technology to tasks such as increasing efficiency and automating business processes for its clients. Moreover, its AI reaches retail customers directly through tasks such as supporting Alexa, improving product listings and ads, and allowing customers to pay with their palms.
The excitement surrounding AI certainly helped boost Amazon's stock. It is probably the main reason why the stock rose more than 80% over the last year.
Additionally, after a slump in online sales and use of cloud applications after the end of pandemic-driven lockdowns, the company's financials appear to have recovered. In 2023, Amazon reported net income of just over $30 billion, a dramatic turnaround from its $2.7 billion loss in 2022.
Furthermore, the improving profits have reduced Amazon's price-to-earnings multiple to around 60. The stock also trades at a forward P/E ratio of 42, a valuation investors have willingly paid when considering Amazon's rapid growth historically.
As Amazon's improving technology takes profitability higher, it should continue to drive investor returns thanks to its increasingly central role in the AI industry.
Microsoft's diverse business and stellar financials can anchor a portfolio
Justin Pope (Microsoft): It's hard to overstate how important Microsoft is to the Nasdaq Composite. After all, it has the second-largest weighting in the index, at 11.5% today. Then factor in the stock's outperformance. Shares are up approximately 58% over the past year, compared to the index's 36% gain. Microsoft was a key driver of this record-breaking Nasdaq run.
There's much to be excited about if you're a long-term investor. Microsoft is poised to play a significant role in AI as a close partner with ChatGPT and Sora creator OpenAI over the coming years. Microsoft's cloud platform, Azure, supplies all of OpenAI's computing power.
With businesses ranging from enterprise software to personal computers, gaming, and cloud computing, it's a diverse company that doesn't rely on a single market to thrive. It is generating over $67 billion in annual free cash flow, has raised its dividend payouts for 22 consecutive years, and has a higher credit rating than the U.S. government.
With its $3 trillion market cap, its size is unmatched, and it's not done growing. Analysts believe Microsoft's annualized earnings growth will average nearly 15% over the long term. There might not be a stock on Wall Street with that combination of safety and growth, making Microsoft a no-brainer anchor for any portfolio.
