AI integrated into social, with a pinch of cruising; three stocks remain a "strong buy" for good reasons.
Investing in stocks has become the mainstay of US economic life to avoid wealth erosion via inflation. The Federal Reserve’s Survey of Consumer Finances (SCF) reported record-high stock ownership in 2022, at 58% compared to the previous all-time high of 53% just before the Global Financial Crisis.
The S&P 500 (SPX) market benchmark is heading to topple its all-time high of 4796.56 on January 3, 2022. Following multiple FOMC signals that the interest rate hiking cycle is ending after another pause, SPX is now holding 24.32% gains at 4758.50.
At 74.89% probability, fed fund futures are pricing the first rate cut for March 2024. With cheaper debt financing on the horizon, the Nasdaq 100 (NDX) Index already reached a new all-time high this Tuesday. Outside of big companies under the S&P 500 umbrella, MicroStrategy (NASDAQ:MSTR) reached 302% gains YTD, riding on the Bitcoin bull run.
Inside the S&P 500 umbrella, Nvidia (NASDAQ:NVDA) has shown the best performance at 243%, followed by Meta (NASDAQ:META) at 182% and Royal Caribbean Cruises (NYSE:RCL) at 152%. The most popular stocks, from Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL), have all received more modest 50% – 80% gains year-to-date.
The question is, are SPX high-gainers this year poised for low-selling in 2024?
1. Nvidia
In 2023, Nvidia crossed a definitive transition from a GPU company focused on the video gaming market to a data center supplier focused on generative AI demand. In the latest Q3 earnings report, Nvidia generated $18.12 billion in revenue, up 205% from $5.93 billion in a year-ago quarter.
Having beaten estimated earnings per share (EPS) of $3.09 at $3.71 for the quarter, Nvidia’s Data Center segment grew by 279% year-over-year to $14.51 billion. In contrast, the company’s long-standing bread and butter, the Gaming segment, tracked 81% yoy growth to $2.86 billion.
Nonetheless, both global markets are poised for double-digit growth. The data center market is poised to reach $554.4 billion in 2030, with a compound annual growth rate (CAGR) of 10 -13%. Likewise, the gaming sector will reach $610.6 billion by 2032, with a CAGR of 10.5%.
In both sectors, Nvidia’s dominance is strong, having an 87% foothold in the discrete GPU market. As the key supplier of GPUs for Google, Amazon, Microsoft, Oracle (NYSE:ORCL), and others, Nvidia is set to carry on AI workload demand into 2024. Although USG chip export controls to China have curbed Nvidia’s A800, H800, A100, H100, and L40S chips, its competitors Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD) have also been impacted.
Taking this into account, Nvidia’s revenue outlook for Q4 FY2024 is $20 billion (+/- 2%). In other words, Nvidia is navigating to achieve AI data center dominance, just as it achieved it in the video gaming arena. This market is heading for a $667.96 billion size by 2030, with a CAGR of 47.5%.
Altogether, Nvidia is a rare case of being both a blue chip and a high-growth stock while still likely to deliver high returns despite already triple-digit gains. Based on 38 analyst inputs pulled by Nasdaq, NVDA is a “strong buy.” The average NVDA price target is $661.35 vs current $491. The high estimate is $1100, while the low forecast is $560.
2. Meta Platforms
Meta is another story of market cornering. Having spread out with Facebook, Instagram, and WhatsApp platforms, Meta is pursuing the momentum of absorbing small startups. Against all competitors, Meta expanded its market share in Q3 2023, now at 16.86% (by total revenue).
Due to this momentum, Meta’s net income for the quarter grew 163% yoy, significantly greater than the sector’s growth of 56%. The social media giant is heavily onboarding the AI train, having co-launched AI Alliance with IBM (NYSE:IBM) this December.
Having access to leading developers and academics in the AI field, Meta is setting itself up for greater cost-efficiency in ad delivery. This is already visible from Meta’s Q3 earnings report, showing a 40% operating margin, a double improvement from 20% in a year-ago quarter.
As Meta Platform demonstrated that it generates more revenue from operations, 41 analysts pulled by Nasdaq placed META stock as a “strong buy.” The average META price target is $387.35 vs the current $350. The high estimate is $435, while the low forecast is $345.
3. Royal Caribbean Cruises
Following the lockdowns in early 2020, the cruise industry was in shambles. Alongside the stock collapse of cruise companies, some shut down permanently. Cruise & Maritime Voyages and Pullmantur were just some that had been sold, scrapped, or returned to the Royal Caribbean Group.
Royal Caribbean emerged as a consolidated company from this crisis, second only to the Carnival Corporation (NYSE:CCL), with a 33.11% market share. In turn, the company’s 153% stock performance in 2023 is buying on weakness as Royal lifts from the bottom.
In the Q3 earnings report, Royal reported better results than guidance at $3.65 earnings per share. The company’s restructuring worked, increasing gross margin yields and net yield at 19.1% and 16.7%, respectively vs Q3 2019.
With customer deposits pooled to $5 billion, Royal forecasts greater demand in 2024, outpacing 2019 levels. Accordingly, 18 analyst inputs pulled by Nasdaq place RCL stock as a “strong buy.” The average RCL price target is $129 vs current $123. The high estimate is $148, while the low forecast is $100 per share.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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