The technology-heavy Nasdaq Composite index posted a solid return of 43% in 2023. Much of this rally was fueled by the surge in AI (artificial intelligence) and related stocks. Since AI isn't a passing theme but a significant long-term technological change, this tailwind can continue to contribute positively to the Nasdaq's performance in 2024.
Historically, the performance of the Nasdaq index, which is comprised mainly of growth stocks, has been closely related to broader economic cycles -- with stronger performance seen in periods of stable growth and innovation. Stronger-than-expected economic growth, low unemployment, and cooling inflation have increased optimism about the U.S. economy.
Many analysts now expect the U.S. economy to avoid a recession and, instead, witness some gentle slowdown in the coming months. Additionally, with the Federal Reserve expected to slash interest rates in the second half of fiscal 2024, the economy may even gear back to growth mode. All this is helping bolster investor confidence and bodes well for the performance of the Nasdaq index, especially in the latter half of 2024.
That's why now may be a good time to pick up small stakes in Microsoft (MSFT -0.23%), Intel (INTC -11.91%), and Amazon (AMZN 0.87%) -- blue-chip stocks that have a strong ability to soar in tandem with the broader technology sector.
Microsoft
Long known for its Windows operating system and Office productivity suite, technology titan Microsoft is now also recognized for its forte in several areas such as gaming, cybersecurity, and cloud computing. The company's $13 billion investment in OpenAI, the creator of ChatGPT, enabled the company to embed AI capabilities in its core offerings. This has not only improved productivity, but also opened new revenue streams.
Cloud computing platform Azure emerged as one of the most notable growth drivers for Microsoft, benefiting significantly from enterprises migrating infrastructure, applications, and workloads to the cloud. Thanks to its broad geographic footprint, increased GPU capacity, and AI capabilities based on Nvidia's H100 AI chips, Azure is witnessing rapid expansion of its customer base. Plus, the launch of AI-powered digital assistant CoPilot, which is integrated into the company's software-as-a-service products such as the Microsoft 365 ecosystem, GitHub, and Outlook, can also prove to be a major long-term growth catalyst.
Considering its strength in diversified business segments, cutting-edge AI capabilities, and robust financials with over $140 billion cash and strong operating cash flow, Microsoft may prove to be a smart buy now.
Intel
A prominent semiconductor player, Intel stands to benefit dramatically from the anticipated recovery in PC (personal computer) shipments in 2024. Research firm Canalys expects increasing demand for AI-capable PCs to be a major driver of this recovery and account for nearly one of every five PC shipments in 2024.
Canalys projected that AI-capable PC shipments will reach 170 million in 2024. To capitalize on this growing AI PC opportunity, Intel launched the Intel Core Ultra processor, also called Meteor Lake -- the first AI PC processor available at a scale that enables dedicated low-power computations for AI workloads.
Furthermore, with businesses and organizations increasingly opting for cloud computing, data analytics, and AI, Intel is also benefiting from rising demand for server processors and other data center components and services from traditional data centers. A clear leader in the CPU market, Intel is seeing robust demand for its Xeon processors from cloud service providers for AI, security, and networking workloads.
The company has also unveiled its Gaudi3 accelerator chip aimed at accelerating AI workloads in the data center. This will be in direct competition with Nvidia's and Advanced Micro Devices' AI chips.
Intel is also making rapid inroads in the automotive AI market with its new family of AI-enhanced chips and a deal to acquire Silicon Mobility, a company that specializes in chips for intelligent electric-vehicle energy management. The AI automotive market is estimated to grow from $3.6 billion in 2022 to $14.9 billion in 2030, so it can present a significant long-term revenue opportunity for Intel.
Against the backdrop of these AI-fueled tailwinds, Intel's current share-price pullback seems to present an attractive buying opportunity.
Amazon
E-commerce and cloud computing giant Amazon grappled in the last couple of years with reduced consumer discretionary spending and declining enterprise spending. However, with recessionary and inflationary fears receding, the future of this stock seems bright. The company reported a 13% year-over-year rise in revenue to $143 billion in the third quarter (ending Sept. 30, 2023), and operating profit surged 348% year over year to $11.2 billion.
Amazon accounted for a 37.6% share of the U.S. e-commerce market in 2023 and is working hard to maintain its market dominance. It's been implementing strategies to regionalize its delivery network, improve delivery speeds, optimize inventory management, and reduce overall operational expenses.
The company is also investing heavily in deploying robotics in its warehouses and in generative AI capabilities for product discovery, inventory forecasting, and optimizing last-mile delivery routes. With global retail e-commerce sales expected to grow by 9.6% to $6.9 trillion in 2024, Amazon seems positioned to benefit from this secular trend.
Furthermore, AWS (Amazon Web Services), after experiencing a slowdown, showed signs of revenue stabilization in the third quarter. This cloud computing platform is seeing an uptick in new customer engagements and deal closures. Coupled with the success of Amazon Bedrock, a new AI service that enables AWS customers to create customized generative AI applications, AWS should continue to thrive in 2024.
Given the strength of its e-commerce business and stabilization trends in the cloud computing business, Amazon seems like a compelling pick in 2024.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manali Bhade has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
As an experienced investor and technology enthusiast, I've closely followed the trends and developments in the tech sector, particularly those related to artificial intelligence (AI) and its impact on the financial markets. The surge in AI and related stocks, as evidenced by the 43% return of the Nasdaq Composite index in 2023, reflects a profound transformation in the technology landscape. Let's delve into the key concepts and companies mentioned in the article:
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Nasdaq Composite Index: The Nasdaq Composite index is a stock market index that includes nearly all stocks listed on the Nasdaq stock market. It is heavily weighted towards technology companies and thus is often used as a benchmark for the performance of the technology sector.
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Artificial Intelligence (AI): AI refers to the simulation of human intelligence processes by machines, particularly computer systems. It encompasses tasks such as learning, reasoning, problem-solving, perception, and language understanding.
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Microsoft (MSFT):
- Microsoft is a technology giant known for its Windows operating system, Office productivity suite, and other software products.
- The company has made significant investments in AI, including a $13 billion investment in OpenAI, a prominent AI research organization.
- Microsoft's Azure cloud computing platform is a major growth driver, benefiting from increased adoption by enterprises and bolstered by AI capabilities.
- The company's diversified business segments and strong financials make it an attractive investment option.
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Intel (INTC):
- Intel is a leading semiconductor company, known for its microprocessors and other computing-related hardware.
- The company is poised to benefit from the expected recovery in PC shipments, driven by increasing demand for AI-capable PCs.
- Intel is also capitalizing on rising demand for server processors and data center components, particularly for AI and data analytics workloads.
- Its expansion into the automotive AI market further underscores its commitment to leveraging AI technologies across various sectors.
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Amazon (AMZN):
- Amazon is a global e-commerce and cloud computing giant, dominating both sectors.
- The company is investing heavily in AI to enhance its e-commerce operations, including robotics for warehouse automation and generative AI for product discovery and delivery optimization.
- Amazon Web Services (AWS), its cloud computing platform, is experiencing revenue stabilization and remains a key growth driver, especially with offerings like Amazon Bedrock, which facilitates AI application development.
These companies exemplify the intersection of AI and technology within the stock market, showcasing how advancements in AI are driving innovation, revenue growth, and investor interest across various industries.
