2 top tech stocks to buy on hand before the Nasdaq jumps higher in 2024

By | March 17, 2024

Technology stocks have been in great form in 2023, evidenced by nearly 67% outstanding gains on the Technology sector Nasdaq-100 index over the year, and the good thing is that the sector is once again showing promising signs this year.

The Nasdaq-100 Technology Sector Index is up about 7% so far in 2024, and history suggests it could end the year with much stronger gains. Aside from 1999, the Nasdaq-100 has posted an average gain of 24% in the year following the year in which the index gained more than 40%, according to brokerage firm Capex.com.

Favorable factors such as a robust US economy and falling inflation could cause the Nasdaq to repeat history and jump higher in 2024. Therefore, now would be a good time for investors to buy technology stocks such as Microsoft (NASDAQ: MSFT) And Micron technology (NASDAQ:MU).

These two companies not only trade at attractive valuations, but are also on track to capitalize on the fast-growing opportunities in the cloud computing and semiconductor markets. Let’s take a closer look at why Microsoft and Micron are worth buying right now.

1.Microsoft

Microsoft stock currently trades at 36 times trailing earnings. That’s slightly higher than the average price-to-earnings ratio of 33 for the Nasdaq-100. However, Microsoft’s earnings multiple of 31 is almost in line with the index average.

Buying Microsoft at this valuation seems smart, given the company’s growing dominance in the cloud computing market. According to Synergy Research Group, Microsoft’s Azure cloud commanded 24% of the cloud infrastructure market in the fourth quarter of 2023, up one percentage point from the year-ago period.

It’s also worth noting that cloud infrastructure spending rose 20% year-over-year in Q4 2023, slightly higher than the 19% growth the market recorded throughout the year. Synergy Research points out that generative artificial intelligence (AI) was a key driver behind the market’s stronger growth last quarter.

However, this is just the beginning of AI adoption in the cloud computing space. Mordor Intelligence estimates that the cloud AI market could be worth $67 billion by 2024, indicating that it could make up a large portion of the overall cloud computing market, which was worth $270 billion last year. But by 2029, the cloud AI market is expected to generate as much as $274 billion in annual revenue.

The good news for Microsoft investors is that the company is making good progress in this fast-growing niche. Azure cloud revenue rose 30% year-over-year last quarter, compared to market leader’s 13% growth Amazon Web services. AI drove six percentage points of growth in Microsoft’s cloud business last quarter, helping it close the gap with the market leader.

The lucrative opportunities in the cloud computing market, along with other areas where Microsoft has long been integrating AI, explain why analysts expect the company’s top and bottom line to get a nice boost in the long term. Independent investment banking firm Evercore estimates that AI could add $82.5 billion in annual revenue for Microsoft by 2028, while increasing earnings by $5.10 per share.

That suggests a big boost, given that Microsoft is expected to post earnings of $11.66 per share on revenue of $244.3 billion in the current fiscal year. Investors would therefore do well to buy this tech titan before it soars higher and becomes expensive due to the growing demand for AI applications across multiple sectors.

2. Micron technology

The memory market turned around in 2023 after being in trouble for about two years. Dynamic Random Access Memory (DRAM) chip prices fell from late 2021 to late 2023, crushing Micron’s top and bottom line.

MU revenue (quarterly) graph

MU revenue (quarterly) graph

The good news for Micron is that DRAM prices are expected to rise between 10% and 15% in the first quarter of 2024. The price increase was driven by growth in multiple areas, ranging from personal computers to smartphones to servers, and that’s not surprising. given the increasing adoption of AI in these areas.

For example, AI servers create the need for more high-bandwidth memory chips, as major chip manufacturers use this type of memory in their AI accelerators. Likewise, the advent of AI-enabled PCs and smartphones should drive stronger demand for memory chips. All this explains why Gartner predicts an 88% increase in memory market revenue this year to $87 billion, driven by stronger prices and volumes. Meanwhile, storage memory revenue is also forecast to rise nearly 50% to $53 billion by 2024.

The recovery of the memory market is why Micron’s revenue is expected to rise as much as 46% to $22.7 billion in the current fiscal year, according to consensus estimates. Analysts expect the momentum to continue in the coming financial years.

MU revenue estimates for the next fiscal yearMU revenue estimates for the next fiscal year

MU revenue estimates for the next fiscal year

Micron shares currently trade at 6.6 times sales. That’s lower than the Nasdaq-100’s price-to-sales ratio of 7.3, suggesting investors are now getting a good deal on this semiconductor stock. That’s because a sales multiple of even 6 after a few fiscal years indicates that Micron could be sitting at a market cap of $212 billion. That’s almost double its current market cap of about $107 billion, which is why investors should consider buying this Nasdaq stock before it skyrockets.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 holds and recommends positions in Amazon and Microsoft. The Motley Fool recommends Gartner and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.

2 Top Tech Stocks to Buy on Hand Before the Nasdaq Jumps Higher in 2024 was originally published by The Motley Fool

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