The Nasdaq has surged impressively over the last two years, with a rise of more than 43% last year and it seems set to increase by over 33% in 2024. This surge can be attributed to the artificial intelligence (AI) boom, as five of the biggest stocks on the index and a number of others within the top 10 are thriving in this rapidly expanding field. The current $200 billion AI market is expected to explode to over $1 trillion by the end of the decade, positioning early adopters of this technology to reap significant rewards in the future.

What’s fueling everyone’s excitement about AI? It holds the potential to dramatically transform numerous processes, saving firms both time and costs – which bodes well for earnings growth. This positive outlook adds to our optimism regarding the Nasdaq’s trajectory for next year.

Moreover, historical data provides additional support for anticipating another Nasdaq rise. Since 1990, in five out of six periods of growth, the index has shown increases over two consecutive years. Typically, the Nasdaq has posted gains for three or more years at a stretch in recent history.

While there’s no certainty that this pattern will continue – market movements can always surprise us – being prepared is crucial. The best way to do so is to invest in a specific stock before the Nasdaq potentially takes off again. So, let’s discover which stock that would be.

Part of all three major indices

This stock proudly belongs to the Nasdaq, the S&P 500, and has recently been added to the Dow Jones Industrial Average. Over the last five years, its value has skyrocketed more than 2,400%. But worry not. Due to its dominance in the AI sector and some significant developments happening right now, it has ample growth potential left. This makes it an excellent buy today, likely to lead the Nasdaq higher next year.

I’m referring to Nvidia (NASDAQ: NVDA), known for producing the world’s most powerful graphics processing units (GPUs). These chips are crucial for many vital AI tasks, including the training and operation of models. Clients have recognized Nvidia’s prowess, which is why they’ve been willing to wait for these sought-after products and pay a premium over competing AI chips. Notably, Oracle co-founder Larry Ellison recently revealed that both he and Tesla CEO Elon Musk pleaded with Nvidia’s leader, Jensen Huang, for more GPUs.

This trend shows that major companies with significant resources are opting for Nvidia over competitors — and the company’s commitment to refresh its GPU offerings annually should help maintain its leadership in this fast-evolving industry.

A key factor that might boost this leading stock

A particular development could lead to stronger earnings in the upcoming quarters, bolstering the stock’s value too. In this quarter, Nvidia is increasing the production of its new Blackwell architecture, which is a groundbreaking offering loaded with customization options, including various chips and networking configurations. Blackwell represents Nvidia’s most potent AI platform to date, and the company reported “staggering” demand during its latest earnings call.

Nvidia projects several billion dollars in Blackwell revenue for the first quarter of its commercialization. As this launch progresses and Blackwell begins to significantly contribute to Nvidia’s already impressive revenue, which soared by 94% to $35 billion in the last quarter, investors are likely to continue gravitating towards this industry leader.

What about the stock’s valuation? Priced at 47 times forward earnings projections, Nvidia is not exactly a bargain. However, given its market leadership, dedication to innovation, and another critical factor – maintaining a gross margin above 70% in recent quarters – this valuation doesn’t seem prohibitively expensive.

All of this could support Nvidia’s growth in the forthcoming quarters and catalyze further Nasdaq gains in 2025. Fortunately, even if Nvidia stock appears to level off next year, the long-term earnings outlook remains bright, suggesting investors have the chance for significant rewards over time.

Adria Cimino holds positions in Oracle and Tesla. The Motley Fool has investments in and recommends Nvidia, Oracle, and Tesla. The Motley Fool follows a disclosure policy.

The Motley Fool is a YSL News content partner providing financial news, analyses, and commentary aimed at empowering individuals to take charge of their financial futures. Its content is produced without the influence of YSL News.

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