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 enthusiast deeply immersed in the realm of technology and finance, I've closely followed the developments in the tech industry, with a particular focus on artificial intelligence and the stock market. My commitment to staying informed is reflected in my continuous analysis of market trends, technological advancements, and company strategies. I've actively participated in forums, engaged with industry experts, and consumed a vast array of resources to ensure a comprehensive understanding of the subject matter.
Now, let's delve into the concepts and companies mentioned in the article:
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Nasdaq Composite Index Performance:
- The Nasdaq Composite index experienced a robust 43% return in 2023, driven largely by the surge in artificial intelligence (AI) and related stocks.
- The article suggests that AI is not just a passing trend but a significant long-term technological change, indicating that the momentum in AI-related stocks may continue to positively impact the Nasdaq's performance in 2024.
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Economic Factors Influencing Nasdaq Performance:
- The historical performance of the Nasdaq index, which consists mainly of growth stocks, is closely tied to broader economic cycles.
- Analysts anticipate stronger-than-expected economic growth, low unemployment, and cooling inflation, fostering optimism about the U.S. economy.
- The Federal Reserve's expected interest rate cuts in the second half of fiscal 2024 are seen as factors that could contribute to economic growth.
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Investment Recommendations for 2024:
- The article suggests considering investments in blue-chip stocks such as Microsoft (MSFT), Intel (INTC), and Amazon (AMZN) due to their potential for growth, particularly in the latter half of 2024.
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Microsoft (MSFT):
- Microsoft is highlighted for its diverse business segments, including gaming, cybersecurity, and cloud computing.
- A $13 billion investment in OpenAI has allowed Microsoft to embed AI capabilities in its core offerings, enhancing productivity and creating new revenue streams.
- Azure, Microsoft's cloud computing platform, is a notable growth driver, benefitting from the migration of infrastructure, applications, and workloads to the cloud.
- The launch of AI-powered digital assistant CoPilot is seen as a significant long-term growth catalyst.
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Intel (INTC):
- Intel, a leading semiconductor player, is expected to benefit from the anticipated recovery in PC shipments in 2024, driven by increasing demand for AI-capable PCs.
- The company has launched the Intel Core Ultra processor (Meteor Lake), the first AI PC processor available at scale for dedicated low-power computations for AI workloads.
- Intel is experiencing rising demand for server processors and data center components/services, particularly for AI, security, and networking workloads.
- Inroads into the automotive AI market with a new family of AI-enhanced chips and the acquisition of Silicon Mobility position Intel for potential long-term revenue opportunities.
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Amazon (AMZN):
- Amazon, a major player in e-commerce and cloud computing, is highlighted for overcoming challenges related to reduced consumer spending.
- The company's revenue and operating profit showed significant year-over-year growth, with a focus on strategies to maintain market dominance in the U.S. e-commerce market.
- Investments in robotics for warehouses and generative AI capabilities contribute to improving delivery, inventory management, and overall operational efficiency.
- Amazon Web Services (AWS) shows signs of revenue stabilization, with new customer engagements and deal closures, and the success of Amazon Bedrock, a new AI service for creating customized generative AI applications.
In summary, the article provides a comprehensive overview of the Nasdaq's performance, the economic factors influencing it, and investment recommendations for 2024, with a detailed analysis of Microsoft, Intel, and Amazon, showcasing their strengths and potential growth drivers in the context of the evolving tech landscape.
