gave S&P 500 2023 ended on a grand note. The index posted nine consecutive weekly gains, its longest winning streak since 2004. Overall, the S&P 500 gained 24 percent last year as market sentiment improved amid signs of economic resilience.
Four sectors were mainly responsible for driving the market up. The technology sector grew by 56 percent and the communications services sector grew by 53 percent, helped in many cases by the boom in artificial intelligence. Consumer discretionary rose 40 percent as cooling inflation spurred spending. Finally, industries grew by 18 percent as business investment in infrastructure and equipment increased.
Not surprisingly, the 10 best-performing S&P 500 stocks in 2023 came from these four sectors, as detailed below:
- Nvidia: 239% — Technology
- Meta platforms: 194% — Communication Services
- Royal Caribbean: 162% — Consumer discretion
- Builders First Source: 157% — industrial
- Uber: 149% — Industrial
- Carnival: 133% — Consumer discretion
- Advanced Micro Devices: 128% — Technology
- The flip group: 127% — Consumer discretion
- Palo Alto Networks: 111% — Technology
- Tesla: 102% — Consumer discretion
Nine of the stocks listed above have a consensus buy rating among Wall Street analysts (Tesla is the lone exception with a consensus hold rating). But analysts think so. Nvidia (NVDA 2.29%) 2024 is the single best pick of the bunch. The stock has an average 12-month price target of $650 per share, which is 37% above its share price as of this writing.
Carnival currently ranks second with a 12-month median price target of $21.50 per share, implying upside of 32%. And Meta Platforms ranks third with a 12-month average price target of $385 per share, implying 12% upside.
Here’s what investors should know about Nvidia.
Nvidia is shaping the pinnacle of artificial intelligence.
Nvidia is a high-speed computing company that provides hardware, software, and services in four end markets: gaming, professional visualization, data center, and automotive. Its 1999 invention of the graphics processing unit (GPU) brought revolutionary visual effects to video games and movies, and the company still holds a 90% market share in workstation graphics processors.
However, Nvidia redefined itself in 2006 when it introduced CUDA, a programming model that allows its GPUs to act as general-purpose processors. The innovation helped the company find purchase in data centers, where its GPUs have become the gold standard in accelerating complex workloads like scientific computing and artificial intelligence (AI).
in fact, Forrester Research Nvidia GPUs have said that AI is synonymous with infrastructure, and the company has consistently achieved outstanding results on MLPerf benchmarks, which evaluate the training and inference performance of AI hardware, software and services. According to analysts, this lead has allowed Nvidia to capture 80% to 95% market share in machine learning (ML) processors. The company also has a 95% market share in data center accelerators, according to CFRA analyst Angelo Zeno.
Nvidia has cemented its position as the gold standard in AI chips by branching out into subscription software and cloud services. It recently launched DGX Cloud, which provides on-demand access to supercomputing infrastructure, software, and pre-trained ML models to support the development and deployment of AI applications, including generative AI applications. are The service also offers frameworks that address specific use cases in a variety of industries, from manufacturing and logistics to retail and cybersecurity.
DGX Cloud is an especially important development because it unifies and democratizes access to Nvidia AI technologies. Quoting Argus analyst Jim Kelleher, “We think Nvidia stands out, not only because it participates in many parts of the dynamic AI economy, but also because it has differentiated its offerings. First synthesized in AI. -A service delivered through the cloud.”
Nvidia reported record results in the third quarter.
Nvidia looked exceptionally strong in the third quarter of its fiscal 2024 (ended October 29). Revenue in the data center segment rose 206% to $18.1 billion on record sales, and non-GAAP net income rose 588% to $10.0 billion as higher-margin software and services accounted for more of total revenue.
The company also reported solid sales growth in gaming and professional visualization, as detailed below:
- Data center Sales rose 279 percent to $14.5 billion.
- Gaming Sales rose 81 percent to $2.9 billion.
- Professional concept Sales rose 108 percent to $416 million.
- Automotive Sales rose 4 percent to $261 million.
Nvidia currently has an identifiable market value of $1 trillion, but that figure should explode as more businesses turn to AI in search of productivity gains. In fact, a Bloomberg Intelligence report estimates that creative AI spending alone will grow 42 percent annually to $1.3 trillion by 2032.
Nvidia stock trades at a reasonable price.
Nvidia is well positioned to grow its business as AI makes its way into the fabric of everyday life. In fact, the Wall Street consensus calls for the company to grow earnings per share by 42% over the next three to five years. This equates to 63 times its current earnings. In fact, given its incredible growth, it seems more affordable than competing chipmakers and cloud infrastructure providers.
Specifically, Nvidia’s PEG ratio — price-to-earnings multiple divided by expected annual revenue growth — currently sits at 1.5. This is a big discount for semiconductor stocks AMD and Intel, which sport PEG ratios of 35.6 and 3.6, respectively. This is also a concession for cloud providers. Amazon And Microsoftwhich have PEG ratio of 2.8 and 2.5 respectively.
As a caveat, 63 times earnings is not cheap. But the price-to-earnings multiple must be considered in context. Nvidia is forecast to grow earnings much faster than its peers, so the stock warrants high value. That said, Nvidia is still a risky investment because the stock could fall sharply if the company fails to meet expectations.
Patient investors should also consider buying a short position today. Shareholders may or may not see the 37% return in 2024 that analysts expect, but Nvidia has become central to the current AI boom. This will certainly translate into shareholder value over the next five-plus years.
Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Trevor Genuine holds positions in Amazon, Nvidia, and Tesla. Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, MetaPlatforms, Microsoft, Nvidia, Palo Alto Networks, Tesla, and Uber Technologies. The Motley Fool recommends Carnival Corporation and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a Disclosure Policy.