As artificial intelligence continues its meteoric rise, tech giants and startups alike are positioning themselves to capitalize on the burgeoning industry. With the AI market projected to expand at a vigorous 37% annual pace through 2030, according to research by Grand View Research, investors have taken notice. Many companies have restructured operations to make AI a priority, creating abundant opportunities for those looking to profit from this technological revolution.
And while AI stocks saw impressive gains last year, experts say the immense growth potential means it’s not too late to reap substantial returns. Meanwhile, shares of companies that recently split their stock are particularly attractive buys, since splits often precede sizable share price appreciation.
Here are two red-hot AI stocks fresh off splits that could deliver huge wins in 2024:
Nvidia: The Chip Leader Riding High in the AI Boom
Nvidia’s (NASDAQ: NVDA) business has exploded over the past few years, with its share price rocketing over 1300% since 2019. Robust expansion motivated management to execute a 4-for-1 stock split in July 2021, the company’s fifth split since 2000. And by all indications, Nvidia is just hitting its stride.
In the last year, Nvidia has emerged as one of artificial intelligence’s biggest players, capturing an estimated 90% market share in AI chips. The company leveraged its long-standing primacy in graphics processing units (GPUs) to gain a commanding lead, while rivals like AMD and Intel strive to catch up.
Surging demand for Nvidia’s AI-optimized GPUs has sent earnings into overdrive. For the third quarter of fiscal 2024 ending October 2023, Nvidia posted an astounding 206% revenue leap, with operating income skyrocketing over 1600%. This explosion was fueled largely by booming data center chip sales.
Earnings projections reveal Nvidia’s profitability gaining momentum. Analysts estimate earnings per share will reach $24 by fiscal 2026, a 96% jump from the $12.25 expected for fiscal 2024. Applying Nvidia’s forward price-to-earnings ratio of 45 to the $24 estimate suggests a potential 2026 share price approaching $1080. This implies approximately 97% upside over the next two fiscal years.
As a foremost chip manufacturer, Nvidia occupies an extremely lucrative position in AI and technology overall. While the company will have to contend with amplified competition in 2023 as rivals debut new chips, unseating Nvidia’s dominance won’t come easily.
And with the AI market’s colossal growth headroom, there appears ample opportunity for Nvidia to maintain leadership while welcoming new players. Consequently, this freshly split stock looks too enticing to pass up entering 2024.
Alphabet: AI Innovation On Top of Search Supremacy
As the owner of powerful brands like Google, Android, and YouTube, Alphabet’s (NASDAQ: GOOG) (NASDAQ: GOOGL) imposing role in technology needs no introduction. Its stock has climbed over 400% across the past decade, on the heels of a 20-for-1 split executed in July 2022.
Much of the company’s success stems from the billions of users its services attract. Alphabet has leveraged this massive user base to construct a lucrative digital advertising business, capturing approximately 25% of the $740 billion market. Widely used platforms including Google Search and YouTube provide seemingly limitless advertising inventory for Alphabet, catalyzing rapid earnings growth in recent years.
Since 2019, Alphabet’s annual revenue has jumped 75%, with operating profit up 108%. Moreover, free cash flow has doubled over the past five years to $78 billion, giving the company ample capital to aggressively invest in research and development and expand into emerging areas like AI.
In December, the tech titan unveiled its hotly anticipated AI system Gemini, positioning it to compete with OpenAI’s formidable GPT-4. This new model could open the floodgates to myriad AI opportunities for Alphabet.
Gemini combined with the popularity of services like Google Search, Cloud, and YouTube is a potent combination. By potentially enabling AI-enhanced search, new Cloud tools, smarter advertising, and sharper YouTube viewer analysis, Alphabet may gain an edge in AI through its existing assets.
Valuation metrics demonstrate Alphabet stock is significantly cheaper than key AI competitors and fellow cloud leaders Microsoft and Amazon. Alphabet posts lower forward price-to-earnings and price-to-free cash flow ratios, signaling a better value at current prices. Since lower readings for these metrics indicate less expensive shares, Alphabet wins handily on both fronts.
With a promising AI outlook and consistent financial execution, Alphabet shapes up as a resounding buy for 2024 and beyond.