Many tech stocks crumbled last year as rising interest rates and other macro headwinds drove investors toward more conservative investments. But this year the bulls rushed back to the tech sector as some of those headwinds dissipated.
As a result, many top tech stocks have more than doubled in price year to date. Let's take a look at three of those hot stocks -- Meta Platforms (META -1.24%), Nvidia (NVDA -1.66%), and C3.ai (AI -1.80%) -- and see if they can double again.
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1. Meta Platforms
Meta's stock sank to a seven-year low last November as its core advertising business sputtered out. Apple's iOS changes made it tough for Facebook and Instagram to craft targeted ads with third-party data, ByteDance's TikTok was luring away its younger users, and the macro headwinds throttled the growth of the broader advertising market. Meta further infuriated its investors by burning billions of dollars on the development of its virtual reality and augmented reality devices.
Yet Meta's stock price has rallied nearly 160% since the beginning of 2023. The market fell in love with Meta again as its advertising revenue grew year over year again in the first and second quarters of 2023. It attributed that growth to surging ad purchases from Chinese cross-border e-commerce marketplaces that wanted to reach overseas buyers. It also countered TikTok with its own short video platform -- Reels -- while upgrading its advertising tools to address Apple's iOS changes.
As Meta stabilized its revenue growth, it aggressively cut costs (but didn't abandon its VR and AR efforts) to boost its operating margins. As a result, analysts expect Meta's revenue and earnings to rise 14% and 56%, respectively, this year. Those are dazzling growth rates for a stock that trades at just 25 times forward earnings.
Over the next few years, I believe Meta's shares could easily double again as it adds even more users to its family of apps, including Facebook, Messenger, Instagram, and WhatsApp, which already serve 3.88 billion people across the world each month.
2. Nvidia
Many investors lost interest in Nvidia last year as its sales of gaming GPUs cooled off in a post-pandemic market. But this year Nvidia's stock has more than tripled as the bulls focused on its accelerating sales of high-end data center GPUs, which are used to process complex machine learning and AI tasks. All of the leading "generative AI" platforms -- including ChatGPT and DALL-E -- currently use Nvidia's GPUs.
Analysts expect Nvidia's brisk sales of data center GPUs, along with the gradual recovery of its gaming business, to boost its full-year revenue and adjusted earnings by 61% and 138%, respectively, in fiscal 2024 (which ends next January).
That would represent a stunning acceleration from Nvidia's flat revenue growth and 25% decline in adjusted earnings in fiscal 2023. However, the bears would argue that a lot of that growth has already been baked into its stock, which is valued at 60 times forward earnings. That high multiple could limit its upside potential and set it up for a steep drop if the AI hype dies down.
Nvidia's near-term gains might be limited, but it could potentially double its share price again over the next few years if it remains the preferred chipmaker of the generative AI market, which Allied Market Research estimates will grow at a compound annual growth rate (CAGR) of 34% from 2023 to 2032. But Nvidia also faces competition from other chipmakers in this growing market, and it's unclear if it can maintain its technological lead over the long term.
3. C3.ai
Another stock that was caught up in the buying frenzy in AI stocks was C3.ai, a developer of AI algorithms for large enterprise customers. Its algorithms can be plugged into an organization's existing software to automate tasks, detect fraud, improve employee safety, and optimize spending. C3.ai's stock surged nearly 240% this year, but I believe that rally was driven entirely by market hype instead of the underlying growth of its business.
C3.ai was previously called C3 Energy and C3 Internet of Things (IoT) prior to its market debut as C3.ai in 2020. It initially attracted a lot of attention for two reasons: It had a catchy ticker symbol, and its founder and CEO Thomas Siebel sold his previous company, Siebel Systems, to Oracle for $5.8 billion in 2006.
But under the surface, C3.ai has some glaring problems. It generates over 30% of its revenue from a joint venture with the energy giant Baker Hughes, but that deal is set to expire in fiscal 2025 and might not be renewed. It also repeatedly changed how it counts its customers, went through three CFOs since its IPO, and abruptly shifted from a subscription-based model to a usage-based one last year.
C3.ai's revenue only rose 6% in fiscal 2023 (which ended in April), but it expects 10%-20% growth in fiscal 2024 as the macro environment improves. However, C3.ai is still deeply unprofitable, and its stock arguably looks overvalued at 14 times this year's sales. So instead of doubling, I believe C3.ai's stock could easily be cut in half in the near future.
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. Leo Sun has positions in Apple and Meta Platforms. The Motley Fool has positions in and recommends Apple, Meta Platforms, Nvidia, and Oracle. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
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