2023 was a magnificent year for many high-quality companies. While the S&P 500/SPX (SP500) bottomed in October 2022, many top tech stocks retested the lows or bottomed around year-end. Therefore, we had stellar returns in some of our top 2023 holdings like Alphabet (GOOG) (GOOGL), Amazon (AMZN), Advanced Micro Devices (AMD), Palantir (PLTR), Tesla (TSLA), and Nvidia (NVDA).
In 2023...
- Google gained 55%.
- Tesla surged by 138%.
- Amazon increased by 75%.
- AMD spiked by 110%.
- Palantir appreciated by 208%.
- Nvidia skyrocketed by 243%.
In full disclosure, I missed some of Nvidia's gains because I took short-term profits after a quick 100% move, causing me to miss out on about a quarter's worth of excellent gains. Palantir was my most significant position throughout last year. These top stocks were amongst my core and most significant holdings last year, enabling my diversified portfolio to achieve a 47% return in 2023.
However, these gains occurred last year. We're in 2024 now, which may be a more challenging year. Top-quality tech stocks are not coming off extreme bear market lows. Nevertheless, we're still in the early stages of the recently started bull market, and many AI-oriented tech stocks could continue to outperform.
Therefore, I'm sticking with several of my top picks from last year, with my top three 2024 stocks being Nvidia, Palantir, and AMD.
What do these companies have in common?
Of course, the three companies are some of the most promising names in AI. Nvidia is the global AI leader, providing comprehensive hardware, software, and services solutions. Moreover, Nvidia is the GPU champion, providing some of the most powerful and promising chips to power the AI revolution. I view Nvidia as the top "picks and shovels" company in the trenches, performing the hard work at the base of the AI industry.
However, Nvidia is not alone. AMD's new accelerated processors, "APUs," are designed to provide the enormous power to run LLMs and other AI-related applications. The AI chip market is expected to be a massive industry and will likely expand rapidly in future years. AMD's CEO Lisa Su said the demand for data center AI chips could grow to roughly $400 billion by 2027. Therefore, AMD's, Nvidia's, and other top chip makers' revenues should grow considerably as we advance.
The AI Mega Market Globally
The AI industry should experience exceptional growth in future years. In fact, we're still relatively early in the AI ball game, and using a baseball analogy, we could be around the third or fourth inning. This dynamic implies plenty of revenue and profit growth potential for the top companies in this space. Last year, AI-industry-related sales were around $208 billion. Growth is expected to be about 43%, pushing sales to nearly $300 billion. Moreover, robust growth should persist, with industry sales expected to hit almost $1.85 trillion by 2030.
These are remarkable growth figures, and the top companies in the AI segment could be the greatest beneficiaries of the coming surge in sales. Many market participants expected the internet to expand differently than it did. Nonetheless, over the years, we've seen some of the most stellar gains in history in the leading internet, software, hardware, and services-related names.
We may witness a similar dynamic with the top AI-related companies. As we're still early in the AI ballgame, the top high-quality companies have extremely long growth runways, which brings us to the third stock on our list here, Palantir.
Palantir provides some of the most advanced and comprehensive AI solutions globally through its artificial intelligence platform "AIP." AIP integrates AI with enterprise data, delivering results to government and commercial clients globally. Palantir has top optimization software and high-quality services, but AI elevates Palantir's business to the next level.
Despite the transitory global slowdown, Palantir's earnings have increased, coming in better than expected in recent quarters.
Palantir's EPS Outperformance Could Continue
Palantir should report $0.25 in EPS for 2023. Also, we should see considerable earnings growth in future years. While this year's consensus EPS estimate is $0.29, we could see higher EPS, resulting in higher revisions. In a more bullish case scenario, we could see EPS of about $0.35 this year, with EPS rising to the $0.40-0.50 range in 2025.
Palantir's EPS Estimates Likely To Rise
Palantir's EPS estimates appear depressed. Palantir has outperformed analysts' expectations in recent quarters, and the constructive earnings trend could continue, leading to upward revisions. If Palantir's EPS comes in around $0.50 next year, its stock only trades at 35 times forward earnings. This valuation dynamic illustrates that Palantir's valuation is lower than it may seem, and the stock can go much higher as future estimates get adjusted.
AMD's EPS Estimates Could Increase
AMD's consensus EPS estimate is about $5.18 for next year. This valuation dynamic illustrates that AMD's forward P/E ratio is around 32, relative to the consensus estimates. However, due to AMD's explosive AI potential, it could beat downbeat consensus estimates, delivering about $7 in EPS instead. Therefore, AMD's forward P/E ratio may be below 25, inexpensive for a company in such an advantageous long-term position.
Nvidia's EPS Could Continue Surging
Nvidia's EPS continue surging and should expand in future years. While next year's consensus EPS estimate is around $20, Nvidia could achieve $25. This dynamic implies that Nvidia could be trading around 24 times forward EPS. This valuation is cheap for a company in Nvidia's market-leading position, suggesting there could be considerable upside for Nvidia's stock ahead.
Outperformance This Year
YTD, Nvidia is up by over 20%, and January is not over yet. While the stock is overbought on a near-term basis, it's likely to consolidate and move higher again. AMD is up by about 14% this year, and should have considerable upside ahead. Of course, it will likely be volatile, and we should see plenty of buy-the-dip buying opportunities in 2024. Palantir is up by only about 3% this year, but the stock has consolidated for about eight months and is likely setting up for a move higher next.
2024 Year-end Price Targets
- Nvidia: $750-850, about 25-40% upside from here.
- AMD: $220-250, approximately 36-58% above current levels.
- Palantir: $28-35, roughly 55-95% higher from here.
Risks To My Thesis
There are risks despite my bullish projections. The bar is set exceptionally high for the top AI companies. Therefore, even the slightest misses in earnings or guidance could have dire circ*mstances. There are risks of overhyping in the AI industry. Moreover, there are company-specific risks to consider. The economy may be slower than expected, resulting in worse growth metrics. There is also increasing competition in AI on the software, hardware, and services side. Investors should consider these and other risks before investing in the companies discussed in this article.
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