The tech rally in 2023 was led by a massive thrust toward AI, especially generative AI. This theme continues to dominate Wall Street’s investment strategy in 2024. Year to date, out of the 11 sectors of the broad-market index the S&P 500 – technology, and its close resemblance, communication services – have rallied 7.7% and 9.5%, respectively.
The benchmark itself has advanced 7.4% year to date. Moreover, the tech-heavy Nasdaq Composite has appreciated 8.9% in the same period. Grand View Research estimates that annual spending across AI hardware, software and services will see massive growth of 820%, from $197 billion in 2023 to $1.8 trillion in 2030, implying an annual growth rate of 37% over that time period.
Smart devices need computing and learning capabilities to perform face detection, image recognition and video analytics capabilities. These require high processing power, speed and memory, low power consumption, and better graphic processors and solutions, which bode well for the semiconductor industry.
Technology research and advisory firm IDC predicts 20.2% year-over-year growth in semiconductor sales in 2024, driven by demand from AI servers and end-point device manufacturers.
Other Catalyst
Recently Fed Chairman Jerome Powell gave his testimony before the Senate after appearing before the House of Representatives a day before. On Mar 6, Powell said the central bank is likely to initiate interest rate cuts this year but not any time soon. However, on Mar 7, he indicated that interest rate cuts may not be too far off if the inflation rate moves in line with the Fed’s expectations in the near future.
Per Powell, “We’re waiting to become more confident that inflation is moving sustainably at 2%. When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction.”
The CME FedWatch currently shows a 74.6% probability of a 25-basis point rate cut in the June FOMC meeting. The interest rate derivative tool also shows at least two more rate cuts of 25-basis points before the end of 2024. A lower interest rate regime will be most beneficial for high-growth sectors like technology.
Our Top Picks
We have narrowed our search to five technology behemoths with strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Zacks Investment Research
Image Source: Zacks Investment Research
NVIDIA Corp.’s NVDA Compute & Networking revenues are gaining from the strong growth of AI, high-performance and accelerated computing. The data center end-market business is likely to benefit from the growing demand for generative AI and large language models using graphic processing units based on NVIDIA Hopper and Ampere architectures.
A surge in hyperscale demand and higher sell-ins to partners across the Gaming and ProViz end markets following the normalization of channel inventory are acting as tailwinds for NVDA. Collaborations with Mercedes-Benz and Audi are likely to advance NVDA’s presence in autonomous vehicles and other automotive electronics space.
NVIDIA has an expected revenue and earnings growth rate of 68.1% and 79.2%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 15.3% over the last 30 days. The stock price of NVDA has jumped 76.7% year to date.
Meta Platforms Inc. META is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement with its offerings like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is leveraging AI to recommend Reels content, which is driving traffic on Instagram and Facebook.
META’s innovative portfolio, which includes Threads, Reels, Llama 2 and Ray-Ban Meta smart glass, and mixed reality device Quest 3 are likely to aid its growth. Reels continued to do very well across both Instagram and Facebook driven by growing adoption. People reshared Reels 3.5 billion times every day during the fourth-quarter.
Meta Platforms has an expected revenue and earnings growth rate of 17.7% and 34.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 30 days. The stock price of META has surged 42.9% year to date.
Super Micro Computer Inc. SMCI designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture. SMCI’s solutions include a range of rack mount and blade server systems, as well as components. SMCI emphasizes superior product design and uncompromising quality control to produce industry-leading serverboards, chassis and server systems.
These Server Building Block Solutions provide benefits across many environments, including data center deployment, high-performance computing, high-end workstations, storage networks and standalone server installations. SMCI sells its server systems and components primarily through distributors, which include value-added resellers and system integrators, and to a lesser extent, to original equipment manufacturers.
Super Micro Computer has an expected revenue and earnings growth rate of more than 100% and 83.8%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days. The stock price of SMCI has soared 301% year to date.
Veeva Systems Inc.’s VEEV continued focus on research and development and a strong product portfolio buoy optimism. VEEV has also been witnessing robust customer adoption of its products, which is encouraging.
VEEV has inked a few strategic alliances over the past few months. A strong liquidity position is an added plus. Per the Zacks Model, total revenues and adjusted earnings per share are likely to witness a CAGR of 12.8% and 11.7% between fiscal 2023 and fiscal 2026, respectively.
Veeva Systems has an expected revenue and earnings growth rate of 15.9% and 23.1%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 2.9% over the last seven days. The stock price of VEEV has advanced 18.3% year to date.
AppLovin Corp. APP is engaged in building a software-based platform for mobile app developers to enhance the marketing and monetization of their apps in the United States and internationally. APP provides a technology platform that enables developers to market, monetize, analyze and publish their apps.
AppLovin has an expected revenue and earnings growth rate of 23.2% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 59% over the last 30 days. The stock price of APP has climbed 59.1% year to date.
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