AI at the Forefront: Can These Three U.S. Stocks Lead a New Bull Market?

One of the biggest investment themes of 2023 is Artificial Intelligence (AI).

Each of the “Big Seven” stocks has played a significant role in the AI field, contributing to over a 40% rise in the Nasdaq Composite Index last year.

This momentum seems to have continued into this year. For instance, the S&P 500 Index recently hit a new all-time high, with many investors looking forward to a new AI-driven bull market in U.S. stocks and wondering where to find investment value.

Among the large tech companies, three stand out as particularly noteworthy: Amazon, the e-commerce and cloud computing expert; Meta, the social media giant and AI innovator; and Nvidia, the leader in AI stocks. Let’s see why investing in these three stocks now could be a lucrative opportunity.

Amazon’s Secret Weapon

This year, the market may witness a significant transformation in AI, with Amazon poised to lead this new bull market as an AI stock.

As the world’s largest cloud service provider and e-commerce company, many of its operations have made meaningful contributions overall. The most crucial mission is its cloud business—Amazon Web Services (AWS).

Despite AWS’s dominance in the cloud computing industry for years, facing fierce competition from Microsoft and Alphabet, the past few years have not been without challenges, including combating inflation and the impact of several rounds of interest rate hikes by the Federal Reserve.

As expected, AWS’s growth began to decline, significantly affecting Amazon’s overall cash flow. Despite economic turmoil, the second half of 2023 showed some positive momentum. Inflation cooled for several months, and the growing interest in AI applications injected much-needed vitality into AWS. From the second to the third quarter of 2023, Amazon’s free cash flow doubled. While e-commerce constitutes a large part of the company’s revenue, the largest contribution to operating profit comes from AWS. In the first nine months of 2023, AWS generated over 70% of Amazon’s total operating income. Although fourth-quarter results have yet to be announced, I’m optimistic that AWS will perform well again, especially since the company invested $4 billion in Anthropic, which will use Amazon as its primary cloud provider and train future generative AI models on AWS cloud.

Over the years, the company has expanded beyond online shopping into cloud infrastructure, media and entertainment, advertising, logistics, and other advanced businesses. As Amazon built this platform, its stock price generally increased.

Meta’s 300% Surge Could Continue

The social media giant and AI innovator Meta also seems to be an excellent choice to lead the new bull market, as the company has already embarked on work in the AI field. The stock bottomed out with the broader market at the end of 2022 but has since accumulated a 300% increase.

It’s noteworthy that Meta is still undervalued. Due to changes in iPhone software and fearless spending from mid-2022 to early 2023, Meta’s free cash flow was in trouble, and the company’s stock was abandoned by many Wall Street analysts.

However, CEO Zuckerberg took timely remedial action, actively cut expenses, and leaned towards AI to counter the adverse effects of iPhone privacy issues, putting the company’s finances back on track. Now, analysts are once again optimistic about Meta’s prospects, expecting an average annual revenue growth rate of 20% in the long term.

Currently, the stock is valued at a very attractive level of 1.1 times, with a forward P/E ratio of only 22 times. As long as Meta continues to make progress and meet analysts’ expectations, the stock is poised to help lead this new bull market.

The AI Chip Leader That Should Never Be Overlooked

Speaking of AI stocks, Nvidia must be mentioned.

This semiconductor stock rose nearly 240% in 2023 and has increased by 25% so far in 2024, leaving some investors wondering if there is still room for growth.

Undoubtedly, chips supporting AI are crucial for this technology. At the end of last year, an analyst estimated that Nvidia controlled over 85% of the market for generative AI accelerator chips.

While this success attracted competitors, companies like AMD and Intel have joined the race. However, with Nvidia’s market-leading position, these companies may still find it challenging to challenge its dominance in the short term.

Such growth rates will make it easier for Nvidia to fend off any potential competition. In the first nine months of the 2024 fiscal year, the company’s revenue reached $39 billion, an 86% year-on-year increase. Net profit exceeded $17 billion, a significant increase from $3 billion in the same period of the 2023 fiscal year.

Furthermore, analysts predict that revenue could grow by 119% this fiscal year. Although growth may slow, they forecast a 57% increase in revenue by the 2025 fiscal year, indicating that this rapid growth will continue.

Thanks to the surge in net profit, Nvidia’s valuation has significantly dropped. In July last year, its P/E ratio once exceeded 240 times. But now, the company’s P/E ratio is only 81 times, with a forward P/E ratio dropping to 50 times.

Therefore, as long as net profits continue to soar, the P/E ratio may further decline, making Nvidia an even safer investment choice.

Considering the demand for AI and its expanding influence, I believe these three U.S. stocks are very capable of dominating among tech leaders in the long term. It seems like an excellent opportunity to acquire stocks at attractive valuations. How should investors invest in these three stocks?

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Thus, I believe investors should not miss the opportunity to buy U.S. stocks.

Best wishes for your stocks to soar!