With 2023 almost behind us, investors are looking ahead to 2024. There have been some exciting trends that have emerged this year. But most people will remember it as the year artificial intelligence (AI) took over. Since OpenAI launched ChatGPT in November 2022, this revolutionary technology has taken off astoundingly, transforming many different industries. It also minted a new class of stock market winners, taking previously unknown companies to new heights. Chipmaker Nvidia (NASDAQ:NVDA) made history when it reached a trillion-dollar market cap in 2023. Now, as investors look toward a new year, they ponder an important question. What will be the trillion-dollar AI stocks of 2024?
One expert on both AI and growth stocks sees great days ahead for the sector. InvestorPlace senior analyst Luke Lango has been bullish on AI stocks since before ChatGPT took them to new heights. As I learned from our previous discussions, he doesn’t view all AI stocks as likely winners. But he sees certain companies as being excellent picks for the 2024 season. And he believes that these future trillion-dollar AI stocks will make investors rich when they reach their full potential.
The Next Trillion-Dollar AI Stocks
Lango has compared the current AI boom to the 1990s dot-com bubble. As he sees it, the rise of AI could be as transformational to the U.S. economy as the evolution of the internet proved to be. The hunt for the next trillion-dollar AI stocks isn’t as cut and dry as simply identifying the best companies, though. Lango notes that the dot com boom arrived gradually as certain phases were ushered in. One year, internet infrastructure stocks soared, while the next saw internet hardware producers have their day. “Similarly, each sub-sector of the AI industry will have its time to shine in the 2020s AI Boom,” Lango predicts.
That doesn’t mean that all previous AI winners will continue at their current growth rate, though. Nvidia turned many heads with its impressive growth last year. However, Lango doesn’t expect it to continue expanding at its current rate, as companies are starting to move away from using Nvidia’s chips, such as OpenAI and Elon Musk’s xAi. As it sees it, the shift away from this industry leader and towards a sector where more and more companies are building their own chips creates an opportunity for new companies to thrive.
One potential winner he sees is British chipmaker and licensing firm Arm Holdings (NASDAQ:ARM). Lango notes that a company in the licensing space has the opportunity to license core products to some of tech’s biggest names, leading to a list of high-profile clients. He also sees Taiwan Semiconductor Manufacturing Company (NYSE:TSM) as a likely winner due to its status as a foundry player. As he highlights, companies like TSMC aren’t only creating the necessary infrastructure for companies to build their own chips in-house; they are designing the technology around it. Thus, companies can leverage TSMC’s technology to create their own chips.
Other Future Winners
It isn’t only chipmakers for whom Lango predicts growth, though. He’s also highly bullish on the electronic design automation (EDA) software field. As he states:
“That’s a market where basically they sell software to help design these chips as they’re going to be integrated for their end use purposes. EDA software typically gets sold to companies like Nvidia. But as Meta (NASDAQ:META) and Amazon (NASDAQ:AMZN) and all these other firms get into the game, they’re going to become EDA software customers too. And so, I think companies that make EDA software are going to have a massive customer base expansion over the next few years, and their revenue growth is going to meaningfully accelerate in the next few years too.”
Lango’s top picks for the EDA market are Synopsys (NASDAQ:SNPS) and Cadence Design Systems (NASDAQ:CDNS). It’s not hard to see why when we consider that these two firms own roughly 40% and 30% of their market, respectively. As Lango notes, the field is currently a duopoly, which puts both stocks in an excellent position to continue growing. Recent data indicates that the EDA market is expected to reach a $22 billion valuation by 2030, expanding a compound annual growth rate (CAGR) of 8.8%.
What’s Next for AI Stocks
The aforementioned companies are by no means the only AI innovators with the potential to join the trillion-dollar club in the coming years. But as Lango sees it, they are the best positioned to benefit from trends that are poised to sweep the AI sector in 2024. This means that investors should watch them carefully as markets gear up for the year ahead.
“I think between those four stocks, Arm, TSMC, Cadence, and Synopsis,” Lango states. “Those are the most likely to follow in Nvidia’s footsteps or win in Nvidia’s demise, and chart a path towards a trillion dollar valuation.”
Some investors may be compelled to focus more on smaller-cap companies that don’t often receive the same type of attention as their larger peers. But as Lango makes clear, the AI world is already changing. Nvidia provides a key example of a former winner that isn’t likely to retain its place. The next trillion-dollar AI stocks will likely be the companies that can ride the coming wave to new heights in the coming year.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
