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With three weeks to go in 2023, it appears technology will be the runaway winner of the Most Valuable Sector trophy.
The S&P 500 Information Technology Index is ahead almost 51% year to date, eclipsing all other sectors by a wide margin.
In my annual review of the top-performing newsletter picks for the year, this makes Tech the obvious place to start. Here are the leading gainers in this sector.
Nvidia Corp. (NSD: NVDA). This company makes the computer chips that are the essential to the development of artificial intelligence. AI has become the new hot zone for investors, and this stock has been a huge winner this year. The shares finished 2022 at $146.14 (figures in U.S. dollars) and, except for a brief dip in October, have been moving higher all year. They closed recently at $465.96, for a gain of 218% for the year to date.
The stock pulled back after the company released third quarter 2024 results that beat expectations but left investors wanting more. Revenue for the three month to Oct. 29 was $18.1 billion, a record. That was up 206% year-over-year and well ahead of the consensus of $16.2 billion. Adjusted earnings per diluted share (EPS) were $4.02, compared with the consensus estimate of $3.37. That compared with $0.58 last year, an astounding gain of 593% year-over-year.
“Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI,” said Jensen Huang, founder and CEO. “NVIDIA GPUs, CPUs, networking, AI foundry services, and AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off,” he said.
Looking ahead, the company is expecting revenue of $20 billion plus or minus 2% in the fourth quarter. Analysts had estimated $17.96 billion.
But investors should be cautious at this point. The stock has had a big run-up and the p/e ratio is sky-high at 115.4. If you hold this stock, and you haven’t already done so, you may want to take half-profits. Retain the rest for future growth potential.
Amazon.com Inc. (NSD: AMZN). When I first recommended Amazon.com in my Internet Wealth Builder newsletter in January 2017, it was trading at a ridiculously high forward p/e ratio of 92.44. Yes, that is expensive, I told readers at the time, but it’s going to be even more expensive a year from now. And it was.
The stock was trading at the time at a split-adjusted price of $40.86. It finished 2022 at $84. Recently it closed at $146.88, up 75% year-to-date.
Amazon’s key to success is that it is constantly innovating. For example, recently it sponsored an NFL football game. Not only was it a first for Black Friday (the NFL has offered a slate of Thanksgiving Day games for years), but the contest also came with in-game shopping deals. Sit back, watch football, and spend!
The company’s third-quarter results (to Sept. 30) continued the growth trend we’ve become used to. Net sales increased 13%, to $143.1 billion, compared with $127.1 billion in the third quarter of 2022. North American sales were up 11%, International was ahead 16%, while Amazon Web Services (AWS) was up 12%.
Net income increased to $9.9 billion ($0.94 per diluted share), compared with $2.9 billion ($0.28 per share) last year.
Amazon is still a long way from being the world’s largest retailer. But if it can persuade people to shop in the middle of an NFL game, who knows what may happen. The p/e is still high, at 76.83, so be judicious if you plan to buy.
Microsoft Corp. (NSD: MSFT). A few years ago, someone asked me what stock I would buy if I could only own one. I answered without hesitation: Microsoft. Ask the same question today, and you’d get the same answer. There are many great software companies, but Microsoft always seems to be a step ahead. The Windows operating system dominates the computer world, and the company is on the cutting edge of AI technology.
Microsoft shares ended last year at $239.82. They’ve moved steadily higher in 2023, closing recently at $370.95, for a year-to-date gain of 55%.
The company recently released results for its 2024 first quarter. Revenue was $56.5 billion, up 13% year-over-year. Operating income was $26.9 billion, a gain of 25%. Net income was $22.3 billion, up 27%, while diluted earnings per share was $2.99, a gain of 27%.
Impressive numbers for a mature business.
“We are making the age of AI real for people and businesses everywhere,” said CEO Satya Nadella. “We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers.”
The company’s close relations with OpenAI, in which it is a major investor, have put it at the forefront of AI development. In fact, for a brief period last week it hired OpenAI’s CEO Sam Altman to run its own AI development team after he was fired by the non-profit’s board of directors. A few days later, Altman was back at OpenAI, and the board had been restructured.
The stock has a p/e ratio of 36.57, making it look like a raging bargain compared withNvidia and Amazon.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/Galeanu Mihai
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