When determining which stocks to invest in, it’s important to decide whether their operating sectors are prosperous and performing well. If very few consumers are eating out, buying shares of a restaurant probably would not be a good idea. I’d recommend doing research on the industries set to dominate the second half of 2024 prior to making your stock picks for the year.
In order to ascertain which sectors will outperform in the near-to-medium term, it’s important to consider the impact of strong macro trends. Artificial intelligence and the rapidly growing consumer spending in the U.S. are two of the most dominant macro trends. Despite the recent rise, I believe that we can expect interest rates to come down at least 0.75 percentage points this year. I kept those macro trends in mind when choosing these industries set to dominate the second half of 2024.
Data Centers
The use of AI is spreading quite rapidly and widely. Indeed, according to an estimate cited by Forbes, “The global artificial intelligence market…. (will) expand at a compound annual growth rate (CAGR) of 37.3% from 2023 to 2030.” The sector’s revenues are expected to reach $1.8 trillion by 2030.
This will greatly benefit the data center industry. Large amounts of data storage and computing power are required for training and delivering AI. Data centers provide both services.
Unsurprisingly given the rapid growth of AI and data centers’ centrality in enabling AI, data center rental costs have increased rapidly. Last year, the average rental rate jumped 18.6% after the metric rose 14.5% in 2022. With the use of AI still rising by large amounts, the demand for data centers is likely to surge in 2024, causing rent to climb again.
Among the data center operators that are likely to benefit tremendously are Digital Realty (NYSE:DLR) and Equinix (NASDAQ:EQIX).
Cloud Infrastructure Providers
The amount spent on computer and storage infrastructure for cloud deployment climbed a robust 18.5% in the fourth quarter of last year. Of course, AI is the major catalyst behind the increase.
Higher spending on cloud computing and storage tools is positive for cloud infrastructure providers. This includes Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Salesforce (NYSE:CRM).
Of course, the trend of higher spending on cloud services is expected to surge this year as AI proliferates. According to Statista, the global outlays by end users on public cloud services is expected to jump to $678.79 billion this year from $563.59 billion in 2023.
Automakers
On March 13, Morgan Stanley upgraded its rating on the automotive sector to “attractive” from “in-line.” The bank expects many automakers to benefit from stronger-than-expected demand for gasoline-powered vehicles and reduced capital spending.
General Motors’ (NYSE:GM) decision to increase its quarterly dividend to 12 cents from 9 cents is making me more upbeat on the sector is. My optimism is also bolstered by renowned investor David Tepper’s purchase of 265,000 shares of GM stock in Q4 2023.
Also noteworthy is that the shares of GM and Toyota (NYSE:TM), the two top-selling automakers in the U.S., have a great deal of momentum already. Specifically, GM stock has risen 25% so far in 2024, while Toyota has lodged a 33% gain so far this year.
Automakers should also benefit from lower interest rates in the second half of 2024.
On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
