After a turbulent 2022, the technology-heavy Nasdaq Composite Index has come roaring back in 2023, buoyed by recovering digital ad spending, cloud demand, and surging interest in artificial intelligence.
The Nasdaq plunged over 35% last year in its worst decline since the 2008 financial crisis. But the index has already gained over 40% so far in 2023 as of December 22.
According to historical data going back to 1972, the Nasdaq’s first full year of existence, the index has climbed an average of 19% in years following bear market rebounds. This suggests the current rally likely has further room to run in 2024.
The recent revival of stock splits has also drawn investor attention to companies whose shares have split after periods of strong growth. Two stocks that fit the bill are Google parent Alphabet and semiconductor leader Nvidia, both of which appear well-positioned for the year ahead.
Alphabet: Digital Ad Rebound and AI Innovation Driving Growth
Alphabet’s share price has surged over 400% in the past decade, spurring a 20-for-1 stock split in 2022. Despite challenges in 2022, Alphabet has a long history of robust financial growth that looks set to continue into 2024.
The company’s main hurdle last year was the dramatic decline in digital advertising revenue, which makes up the lion’s share of profits from Google Search and YouTube. But the ad market now seems to be recovering. Digital ad spending is forecast to grow 11% globally in 2023 according to research from Madison and Wall.
With its leading 30% share of the worldwide digital ad market, Alphabet stands ready to capitalize on this tailwind. Its dominance in search advertising gives it unmatched reach, while machine learning advancements continue to improve ad targeting and performance.
Cloud computing revenue is also rebounding after pandemic-related slowdowns, up 16% globally last quarter per Canalys. Google Cloud grew revenue 24% year-over-year in the same period, maintaining 10% market share. While still 3rd behind AWS and Microsoft Azure, Google Cloud has room for expansion in this $500 billion market.
Additionally, Alphabet has moved swiftly to harness the potential of generative AI, which promises to boost productivity across its products. Its new Gemini model outperforms ChatGPT on major benchmarks, while integrations in Google Search aim to provide more helpful information to users.
As a leading cloud provider, Google Cloud’s infrastructure gives Alphabet the ability to efficiently scale delivery of AI services to business customers. With computing power a key constraint on AI development, Google Cloud’s investments in its GPU-powered Tau VMs help lower the barrier for organizations to leverage generative AI.
Alphabet’s current P/E ratio of 18 also represents a discount versus its 3-year average of 23, suggesting the stock may be undervalued given the company’s large and expanding market opportunities.
Nvidia: GPUs Powering AI, Gaming, and the Metaverse
Nvidia’s share price has skyrocketed over 12,000% in the last 10 years, fueling a 4-for-1 stock split in 2021. With dominance in graphics processing units (GPUs) that underpin AI computing, gaming, and the metaverse, Nvidia appears poised for strong continued growth.
The company pioneered GPUs, which enable the realistic 3D graphics behind modern video games. Nvidia holds over 80% market share in desktop discrete GPUs used for gaming PCs.
But CEO Jensen Huang also recognized that GPUs’ parallel processing capabilities could accelerate workloads like data center AI. Nvidia now holds around 95% market share in data center GPUs per CFRA Research, serving AI training and inference needs for companies like Google, Amazon, and Facebook.
In particular, Nvidia dominates the market for AI chips used in machine learning, with around 95% share per New Street Research estimates. Its CUDA software platform and GPU-optimized AI frameworks like TensorRT give it an edge over competitors.
The rise of generative AI presented a new challenge, but Nvidia’s new HGX H200 GPU architecture delivers breakthrough performance tailored to models like GPT-3. Partnerships with Microsoft Azure, Google Cloud, and Amazon Web Services also expand access to its AI infrastructure for developers.
The surge in demand for AI, gaming, and the metaverse has supercharged Nvidia’s growth. In its most recent quarter, data center revenue including AI solutions soared 279% year-over-year to a record $14.5 billion.
Nvidia trades at a premium 63 P/E ratio, but its PEG ratio of under 1 signals the stock may still be undervalued relative to its explosive growth trajectory. With data center and AI spending still in the early innings, Nvidia appears positioned to continue benefiting from some of tech’s most important mega-trends.
In a sector prone to booms and busts, Alphabet and Nvidia have proven able to sustain growth through multiple technology cycles. As digital advertising and cloud computing rebound while AI unlocks new capabilities, 2024 could see these tech titans extend their record-setting runs. For investors seeking exposure to tech’s future, these two innovative companies deserve a close look.
