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 has been a strong half for the stock market and the clear leader driving this growth has been Nvidia (NASDAQ: NVDA). The chipmaker’s stock has been on a meteoric rise over the past five years, and that momentum continued into the first half of 2024 with the stock up over 150%.

With the first half of the year now behind us, however, it’s time to look for a stock that could potentially help drive the market higher in the second half. A candidate is Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG).

All about AI

The biggest trend in the market in the first half of 2024 was clearly artificial intelligence (AI). Not long ago considered a nascent technology, AI certainly hit the mainstream earlier this year with numerous tech companies starting to offer AI-powered features in their products.

The biggest early beneficiary of this technological shift has been Nvidia, whose graphics processing units (GPUs) are used to build the infrastructure needed to run AI training and CONCLUSION. With the rise of AI and companies rushing to introduce AI solutions, demand for Nvidia chips has outstripped supply as the company has worked with its manufacturing partners to quickly expand production capacity.

This has led to explosive growth from the company to start the year, with its first-quarter revenue rising 262% to $26 billion.

Why Alphabet Can 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. The big three cloud computing companies Amazon, Microsoftand Alphabet have all benefited from the rise of AI so far, but they still have a lot more growth potential coming down the road.

Of the three companies, the one I like best is Alphabet for several reasons.

The first reason is that with the smallest cloud segment of the three, it has some of the best earnings growth potential. The cloud computing business has many high fixed costs associated with it, so companies must reach a certain level of scale before becoming profitable. Once they do, however, the operating leverage of the business model begins to kick in and increased profitability will outpace revenue growth.

Google Cloud just hit this scale and turned profitable last year. As such, the segment should see strong profitability growth both in the second half of this year and in the coming years.

A person uses a search bar on a laptop.A person uses a search bar on a laptop.

Image source: Getty Images.

Second, while there have been some issues with the company introducing new AI overlays with its search results, there is solid potential for the company in this area. Alphabet has traditionally only served link-based ads on about 20% of its search results, and only gets paid when those links get clicks. However, the company is already testing new ad formats with both its AI overlays and new AI-powered formats for retailers. With 80% of its research results previously unearned, this offers huge upside potential in the years to come.

Meanwhile, Alphabet is also the cheapest of the Magnificent Seven stocks, trading at a price-to-earnings (P/E) ratio below 25. Given this, in addition to its upside prospects, the stock has the potential to expand its multiples. (which is simply when its P/E ratio and other valuation metrics move higher). This sets the stock up for a potential strong performance in the back half of this year.

GOOGL PE Ratio Chart (Forward).GOOGL PE Ratio Chart (Forward).

GOOGL PE Ratio Chart (Forward).

While I still wouldn’t consider Nvidia to be the market leader once again in the second half of the year, just given how much momentum it’s seeing in its business, I think Alphabet is a strong candidate to lead the market going forward. the rest of this year. year.

Fortunately for investors, you don’t have to choose just one, and you can own both Nvidia and Alphabet. Both continue to have bright long-term futures.

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Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive 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 has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a 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

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