Finance
Nvidia led the market higher in the first half of 2024, but another ‘Magnificent Seven’ stock is poised to power the market in the second half
The first half of 2024 was a strong period for the stock market, and the clear leader driving this growth was Nvidia (NASDAQ: NVDA). The chipmaker’s shares have soared over the past five years and that momentum continued into the first half of 2024, with the stock up more than 150%.
However, now that the first half of the year is behind us, it’s time to look for a stock that can potentially help the market rise in the second half. One candidate does Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG).
Everything about AI
The biggest trend in the market in the first half of 2024 was clear artificial intelligence (AI). Not long ago considered an emerging technology, AI certainly hit the mainstream early this year, with numerous tech companies beginning to offer AI-powered features in their products.
The biggest early beneficiary of this technological shift is Nvidia, whose company graphics processing units (GPUs) are used to build out the infrastructure needed to conduct AI training inference. As AI takes off and companies rush to introduce AI solutions, demand for Nvidia chips has outpaced supply as the company has worked with its manufacturing partners to rapidly expand production capacity.
This has led to explosive growth for the company at the start of the year, with first quarter revenue increasing 262% to $26 billion.
Why Alphabet could lead the market higher
AI infrastructure was the dominant theme in the first half of the year. But it could be Nvidia’s cloud computing customers that help lead the market higher in the second half of the year. The three major cloud computing companies of Amazon, Microsoftand Alphabet have all benefited from the rise of AI so far, but there is much more potential growth ahead.
Of the three companies, I like Alphabet the most, for a few reasons.
The first reason is that with the smallest cloud segment of the three, it has the best earnings growth potential. The cloud computing industry involves many high fixed costs, so companies must reach a certain level of scale before becoming profitable. However, once they do, the operating leverage of the business model will kick in and profitability will exceed revenue growth.
Google Cloud recently reached this scale and became profitable last year. As such, the segment should see strong profitability growth both in the second half of this year and in the years to come.
Second, while there have been some issues with the introduction of new AI overlays to search results, there is solid potential for the company in this area. Alphabet traditionally only served link-based ads on about 20% of search results and only got paid when those links were clicked. However, the company is already testing new ad formats, both with its AI overlays and new AI-powered formats for retailers. Since 80% of search results were previously unmonetized, this offers a huge potential benefit in the coming years.
Meanwhile, Alphabet is also the cheapest of the ‘Magnificent Seven’ stocks, with a price-to-earnings (P/E) ratio below 25. Therefore, in addition to its growth prospects, the stock also has the potential to expand its multiples ( which is simply the case when the price-to-earnings ratio and other valuation measures increase). That sets the stock up for a strong potential performance in the second half of this year.
While I still can’t see Nvidia as a market leader in the second half of the year given the tremendous momentum it’s seeing in its business, I think Alphabet is a strong candidate to lead the market for the rest of this year to lead. year.
Fortunately for investors, you don’t have to choose one and you can own both Nvidia and Alphabet. Both still have a bright long-term future.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
Nvidia led the market higher in the first half of 2024, but another ‘Magnificent Seven’ stock is poised to power the market in the second half was originally published by The Motley Fool
