Nasdaq Trends and Promising Stocks
The Nasdaq Composite has enjoyed an impressive average annual return of 17% over the last ten years, largely thanks to advancements in cloud computing, digital advertising, and artificial intelligence (AI). However, it’s worth noting the index is down 4% since the year’s start. To align with that decade-long average, it would have to climb 21% by December.
Although that sounds a bit ambitious, estimates from Wall Street indicate the technology and consumer discretionary sectors might grow by 33% and 22%, respectively, over the next year. Since these sectors make up a significant 80% of the Nasdaq’s performance, there’s a possibility the index could indeed make that 21% gain by the year’s end.
On another note, investors looking for potential gains might consider two strong growth stocks: Nvidia and MercadoLibre. Here’s why they could be great additions.
Nvidia recently shared its fourth-quarter results, which were quite impressive. Revenue surged by 73%, reaching $68 billion, marking a consecutive year of acceleration. Its net income also saw an 82% increase, landing at $1.62 per diluted share. CEO Jensen Huang remarked that the AI boom remains robust, asserting that “Computing demand is increasing exponentially.” That’s a bold statement, but it reflects the current fervor surrounding AI technologies.
That said, some investors express concern about the durability of these AI investments and potential competition. Interestingly, historical patterns show that Wall Street has consistently underestimated AI capital spending, and analysts might still be repeating that error this year. For instance, guidance from major players like Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle indicates a 60% increase in capital expenditures for AI this year alone, following a substantial 70% boost in the preceding two years.
Joseph Moore from Morgan Stanley recently noted that these hyperscalers are making sizable three-year orders with memory suppliers, sometimes paying up front. He suggests that this could be a strong indicator of sustained spending growth, with Nvidia emerging as a primary candidate in the semiconductor sector.
As for competition, while custom chips like Google’s TPUs could chip away at Nvidia’s market share, it’s unlikely Nvidia will lose its commanding position. Its comprehensive ecosystem of GPUs, CPUs, networking, and software development resources provides a solid competitive edge.
Big picture? Wall Street anticipates that Nvidia’s revenue will grow by 38% annually over the next three years. Given this growth outlook, a current price-to-earnings ratio of 37 appears relatively attractive. Most analysts believe Nvidia’s stock is undervalued, with a median price target of $265 per share suggesting a potential 45% upside from its current price of $183.
Meanwhile, MercadoLibre stands as the largest online marketplace in Latin America by traffic and product volume. The region itself boasts the fastest-growing e-commerce market globally. The company accounted for 29% of last year’s online retail sales in Latin America, with forecasts indicating this could rise to 30% this year.
MercadoLibre isn’t just an e-commerce platform—it’s also a strong player in related services, including logistics and digital payments. This multi-faceted approach allows it to significantly outpace its competitors in the region. The company’s delivery network is not only extensive but also efficient. Additionally, Mercado Pago, its fintech subsidiary, ranks highly in digital wallet popularity across various countries.
Overall, MercadoLibre is positioned at the intersection of three rapidly growing markets: e-commerce, digital advertising, and digital payments. Predictions suggest the company’s profits may grow 39% annually through 2027, which makes its current valuation of 43 times earnings look appealing. The median price target of $2,650 implies an upside of 59% from its present share price of $1,669.
Before considering an investment in Nvidia, it’s vital to reflect on broader market dynamics.
