The stock market has rallied impressively in 2023 thanks to multiple factors such as cooling inflation, the Federal Reserve's pause on interest rate hikes, a robust U.S. economy, and a solid job market, all of which explains why the Nasdaq Composite index has shot up an impressive 41% this year.
The good news is that the stock market is expected to head higher in 2024, especially as the Fed is anticipated to cut interest rates three times next year. Bloomberg, for instance, forecasts that the S&P 500 index could hit record highs in 2024. A lower interest rate environment bodes well for growth stocks, which struggled last year when the Fed was continuously increasing rates.
Lower interest rates will allow growth-oriented companies to get access to capital at a lower cost, while also increasing the value of their future cash flows. That's why if you have $1,000 in investible cash after paying off your bills, clearing any high-interest debt, and saving enough for difficult times, it could be a good idea to put that money into the following growth stocks that could deliver healthy returns in 2024 and beyond.
1. Nvidia
Nvidia(NASDAQ: NVDA) has become a top growth play in 2023, turning a $1,000 investment made in the stock at the beginning of the year into more than $3,300 as of this writing.
What's worth noting here is that Nvidia stock is cheaper on a forward earnings basis compared to some of its peers in the "Magnificent Seven," which refers to a group of seven megacap tech companies that have been delivering significant gains recently.
Melius Research analyst Ben Reitzes, who has a $750 price target on Nvidia stock, points out that the tech giant is cheaper than Apple and Microsoft as far as the forward price-to-earnings (P/E) ratio is concerned. As the following chart shows, only Meta Platforms and Alphabet are cheaper than Nvidia on a forward P/E basis.
NVDA PE Ratio (Forward 1y) data by YCharts
Investors, therefore, can still consider buying Nvidia even though it has more than tripled this year. That's because the company's dominance of the market for artificial intelligence (AI) chips is likely to drive even stronger growth next year.
Nvidia is on track to end the current fiscal year with revenue of $59 billion, which would be a 119% jump over the prior year. The company's data center business has played a critical role in this impressive growth, as this segment has benefited from the AI chip boom. More specifically, 75% of the company's revenue has come from selling data center chips in the first nine months of the current fiscal year.
So, the data center business could end the year with $44 billion in revenue (based on the contribution of the data center business to Nvidia's top line and its full-year revenue forecast), which would be nearly triple the revenue it generated in fiscal 2023.
Nvidia's rival Advanced Micro Devices estimates that the AI chip market could be worth $45 billion this year. This means that Nvidia now has a terrific grip on this market. What's more, AMD estimates that the AI chip market could be worth a whopping $400 billion in 2027, multiplying almost 10 times within five years. Even if Nvidia loses share and ends up controlling half of this market at that time, its top line could hit $200 billion. That would be more than three times Nvidia's estimated fiscal 2024 revenue.
Not surprisingly, analysts are expecting Nvidia's earnings growth to accelerate significantly over the next five years to an annual rate of 103% as compared to the 48% annual growth it has clocked in the past five years. As such, Nvidia seems capable of giving investors hefty returns in the future as well, which is why putting $1,000 into this tech stock seems like a good idea right now.
2. Micron Technology
A $1,000 investment in Micron Technology(NASDAQ: MU) stock at the beginning of the year is now worth just over $1,600. Shares of the memory specialist have benefited from the changing dynamics in the memory market, which has been under duress over the past couple of years on account of an oversupply.
Market research firm TrendForce estimates that the price of dynamic random access memory (DRAM) increased 18% quarter over quarter in the third quarter of 2023. The firm predicts that prices could jump another 13% to 18% in the current quarter. More importantly, Gartner is forecasting a massive increase of 66% in the memory market's revenue next year, which would be a big improvement over 2023's estimated decline of 39%.
There are multiple reasons the memory market is expected to turn around sharply next year. First, sales of personal computers are expected to recover 8% in 2024, following an estimated decline of 12.4% this year. Second, the smartphone market is also expected to rebound next year. And finally, new catalysts such as AI are going to drive an improvement in memory demand, and the good part is that Micron is well-placed to take advantage of the same.
Therefore, consensus estimates are pointing toward a significant acceleration in Micron's growth. The company is expected to deliver a 40% jump in revenue in the current fiscal year (which started in September 2023) to $21.8 billion, while its loss is expected to shrink to $1.21 per share from a loss of $4.45 per share in fiscal 2023. Even better, Micron is expected to sustain solid growth in the next fiscal year.
MU EPS Estimates for Next Fiscal Year data by YCharts
Given that Micron stock is currently trading at 5.7 times sales, investors are getting a good deal on it, considering the impressive growth that it is set to deliver. If Micron does hit $31 billion in revenue in a couple of years, as the estimates suggest and maintains its current sales multiple, its market cap could increase to $176 billion. That would be a 95% increase from current levels, indicating that a $1,000 investment in this semiconductor stock may double over the next two years.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
