Future Indications Suggest Potential Nasdaq Surge in 2025: Two Artificial Intelligence Stocks Worth Investing in Beforehand.
According to historical data from CNBC dating back to 1980, the Nasdaq and other significant indexes have generally increased in the months following a presidential election. This pattern persisted in 2024, with the tech-focused index climbing approximately 10% since Donald Trump's victory on Nov. 5. With a new administration in place, reduced political uncertainties often result in market participants feeling more at ease with holding assets in general.
However, there's no assurance that the Nasdaq's growth will persist into 2025. Nonetheless, Wall Street's continued investment in AI technology suggests that stocks such as Advanced Micro Devices (AMD -2.08%) and Amazon (AMZN -0.64%) could prolong their exceptional growth trajectories. Let's delve deeper.
1. Advanced Micro Devices
Despite a 13% dip in its share value this year, AMD stands out as a chipmaker that missed out on much of the AI rally, despite its robust presence in the hardware sector. The company's versatile business model makes it an enticing alternative to Nvidia. Furthermore, it provides an appealing valuation for investors.
AMD recorded a 17% year-over-year increase in its third-quarter revenue, reaching $6.8 billion. This overall figure, however, may disguise the exceptional growth of its data center segment, which saw a 122% surge to $3.5 billion, thanks to the robust sales of advanced graphics processing units (GPUs) utilized in running and training AI algorithms. The company aims to fuel continued growth in the data center sector by unveiling more advanced chips, such as the Instinct MI325X series, which rival Nvidia's Blackwell.
By generating 51% of its revenue from data center sales, AMD is considerably more diversified than Nvidia, which generates approximately 88% of its third-quarter revenue from the data center sector. Although AMD's AI-less business model has resulted in slower short-term growth, it will make the company more resistant to potential slowdowns in the industry.
Moreover, AMD's forward price-to-earnings (P/E) multiplier of 25 is lower than Nvidia's, which hovers around 31 times forward earnings.
2. Amazon
While AMD demonstrates diversity within the technology hardware industry, Amazon takes versatility to the next level with its involvement in e-commerce, cloud computing, and AI infrastructure. The company's cost-cutting initiatives put it in a solid position to execute its long-term strategy and deliver value to investors.
Led by CEO Andy Jassy, who took charge in early 2021, Amazon transitioned from a growth-at-all-costs approach to one emphasizing sustainable profitability. Following multiple years of layoffs and supply chain optimization, these changes have significantly enhanced its operational outcomes.
Third-quarter revenues for Amazon expanded by 11% year-over-year to $158.9 billion, while operating income skyrocketed 64% to $17.4 billion.
Amazon Web Services (AWS) remains the cornerstone of its bottom line, generating $10.4 billion in operating income during the third quarter. Furthermore, there's substantial room for continuing growth.
AWS offers Amazon exposure to the foundational aspects of the AI opportunity, enabling it to essentially provide Nvidia GPU computing power to AI startups on a rental basis. This strategy shields Amazon from some of the risks associated with competing in the more speculative software sector. Additionally, Amazon has developed its own AI chips called Trainum and inferentia, which can offer cost-savings for specific workloads and lessen its reliance on suppliers like Nvidia.
Employ a defensive strategy
Since the launch of OpenAI's ChatGPT in late 2022, the generative AI industry has spawned numerous millionaires. It's easy to perpetuate this hype cycle into 2025. However, investors should keep in mind that AI remains a highly speculative sector. It is also unclear how long companies will maintain their high spending levels on research and hardware.
Companies like AMD and Amazon are ideal for the long term as they afford investors exposure to the foundational side of this opportunity while maintaining potentially safer, diversified business models.
In light of the potential growth of the AI sector, individuals interested in investing might consider companies like Advanced Micro Devices (AMD). With its robust presence in hardware and versatile business model, AMD could prove to be a promising investment choice, especially considering its lower forward price-to-earnings (P/E) multiplier compared to competitors.
Furthermore, Amazon, with its involvement in e-commerce, cloud computing, and AI infrastructure, presents a unique opportunity for investors seeking versatility. The company's cost-cutting initiatives and focus on sustainable profitability have improved its operational outcomes, as demonstrated by its substantial third-quarter revenue growth and operating income.
