History Says the Nasdaq Will Soar in 2025. Here’s the 1 AI Stock to Buy Before It Does.
The Nasdaq has blasted higher over the past two years, gaining more than 43% last year and now heading for an increase of more than 33% for 2024. This is thanks to the artificial intelligence (AI) boom, as five of the benchmark’s most heavily weighted stocks and several others in the top 10 operate in this high-growth area. Today’s $200 billion AI market is forecast to reach more than $1 trillion by the end of the decade, meaning companies that got involved in this technology early could greatly benefit in the years to come.
Why is everyone excited about AI? Because it could revolutionize the way many things are done, saving companies time and money — and that’s great news for earnings growth. This alone could offer us optimism about the path the Nasdaq will take next year.
But history also offers us reason to believe in another Nasdaq win. Since 1990, five out of six periods of gains have involved the index rising for more than two consecutive years. So, the Nasdaq has generally posted three or more years of gains in recent times.
Of course, there’s no guarantee this will happen — indexes and stocks can surprise us — but if it does, you’ll want to be prepared. And the best way to prepare is to buy one particular stock before the Nasdaq soars once again. Let’s find out which one.
This player is a member of the Nasdaq, the S&P 500, and, most recently, it joined the Dow Jones Industrial Average. It’s advanced more than 2,400% over the past five years. But don’t worry. Thanks to its dominance in the AI market and something important unfolding right now, it still could have plenty of room to run. And that’s why it still makes an excellent buy today, one that could again lead the Nasdaq higher next year.
I’m talking about Nvidia (NASDAQ: NVDA), the seller of the world’s most powerful graphics processing units (GPUs). These chips are key elements in many crucial AI tasks, such as the training and inferencing of models. Customers have recognized Nvidia’s strength here, and that’s why they’ve been willing to wait for deliveries of these top products and pay more than they would for rival AI chips. In fact, Oracle co-founder Larry Ellison even said in recent times that he and Tesla leader Elon Musk actually begged Nvidia’s chief, Jensen Huang, for more GPUs.
So, the world’s biggest companies — those with the resources to invest heavily in AI — see value in choosing Nvidia over the competition. This and Nvidia’s pledge to update its GPUs on an annual basis should keep it in the top spot in this fast-moving industry.
One thing in particular could translate into earnings strength in the quarters to come and more gains for the stock, too. This quarter, Nvidia is ramping up production of its new Blackwell architecture, a game-changing offering with many customizable features, such as different chips and networking options. Blackwell is Nvidia’s strongest AI platform yet, and demand has been “staggering,” the company said during its most recent earnings call.
Nvidia even expects several billions of dollars in Blackwell revenue during this first quarter of commercialization. So, as this launch unfolds and Blackwell starts contributing big to Nvidia’s already soaring revenue — it jumped 94% to $35 billion in the most recent quarter — investors may continue to flock to this market leader.
But what about valuation? At 47 times forward earnings estimates, Nvidia’s stock isn’t dirt cheap. However, I don’t think this level is extremely expensive either, considering Nvidia’s leadership in the market, commitment to innovation, and one other key element: Nvidia’s profitability on sales. The company has maintained a gross margin of more than 70% over the past few quarters.
All this could boost Nvidia in the quarters to come and drive further gains in the Nasdaq in 2025. The good news is that even if Nvidia stock takes a pause next year, the long-term earnings picture remains bright, meaning investors could still score a major win over time.
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*Stock Advisor returns as of December 9, 2024
Adria Cimino has positions in Oracle and Tesla. The Motley Fool has positions in and recommends Nvidia, Oracle, and Tesla. The Motley Fool has a disclosure policy.
History Says the Nasdaq Will Soar in 2025. Here’s the 1 AI Stock to Buy Before It Does. was originally published by The Motley Fool
