Top AI Stocks to Buy Amidst Nvidia's Plunge

AI stocks have surged considerably this year, fueled by remarkable growth and enthusiasm for this breakthrough technology, with NVIDIA Corporation (NVDA) reigning as the dominant force. Its stock soared over 50% year-to-date, propelled by robust earnings. However, recent sell-offs hint that gains were primarily sentiment-driven and vulnerable to market dynamics.

NVDA’s shares nosedived by more than 14% over the last five days, surpassing the NASDAQ Composite Index's nearly 5% drop and the Dow Jones Industrial Average Index's minor decline in the same period.

When stocks like NVDA and Super Micro Computer, Inc. (SMCI) experience monumental growth, even minor setbacks trigger profit-taking, leading to cascading sell-offs. A single adverse event can snowball into significant losses as investors rush to secure profits amid fears of a bubble burst, highlighting the fragility of market sentiment.

Investor concerns have mounted as SMCI plunged by up to 21% in the last five days, reflecting apprehension about its upcoming earnings report. Although the company scheduled the release for April 30, it refrained from preannouncing earnings, unlike in January for its second-quarter results.

Typically, companies preannounce earnings when results exceed Wall Street consensus estimates. The absence of such a preannouncement from SMCI has stirred concerns on Wall Street. Analysts fear the upcoming earnings report may not match the previous quarter's robustness and could fall short of expectations.

NVDA isn’t immune to broader market sentiment despite its size and buffering impact. NVIDIA's chips are integral to SMCI's server solutions, leading investors to correlate potential weaknesses in SMCI's earnings with NVDA. 

Additionally, NVIDIA’s elevated valuation exacerbates market sensitivity. In terms of forward non-GAAP P/E, the stock trades at 30.58x, 34.1% above the industry average of 22.80x. Furthermore, its forward EV/Sales of 16.68x is 520% higher than the industry average of 2.69x, and its forward Price/Sales of 16.81x compares to the industry average of 2.69x.

Considering these factors, investors might explore alternative AI stocks poised to outperform NVDA in the near future. Amid NVDA's decline, these stocks offer diversified opportunities to capitalize on the burgeoning AI industry's growth potential.

Microsoft Corporation (MSFT)

Microsoft Corporation (MSFT), a leading tech company, posted stellar results surpassing analysts’ expectations, marking another quarter of double-digit growth in top and bottom lines. For the fiscal 2024 second quarter that ended December 31, 2023, the company’s total revenue surged 17.6% year-over-year to $62.02 billion and surpassed the consensus estimate of $61.13 billion. It reported a 32.5% increase in operating income to $27.03 billion.

Further, MSFT’s EPS increased 33.2% year-over-year to $21.87 billion and $2.93. That compared to analysts’ estimate of $2.77. The solid financial performance underscores the effective execution by MSFT's sales teams and partners, driving significant market share gains.

In addition to financial success, MSFT expanded its technological capabilities during the quarter. It integrated support for OpenAI's latest models, including GPT-4 Turbo, GPT-4 with Vision, and Dall-E 3, demonstrating its commitment to innovation and staying at the forefront of AI technology.

Furthermore, MSFT secured strategic partnerships and investments, enhancing its position in key markets. The company announced a $1.5 billion investment in G42, a leading UAE-based AI technology holding company, strengthening collaboration on AI initiatives and skilling programs globally.

Moreover, MSFT deepened its collaboration with Cloud Software Group Inc. through an eight-year strategic partnership agreement. This collaboration will drive cloud and AI solutions innovation, leveraging Microsoft Azure as the preferred cloud platform.

Looking ahead, analysts expect MSFT’s revenue to increase 15.3% year-over-year to $244.34 billion for the fiscal year ending June 2024. Its EPS for the current year is expected to grow 19.3% from the previous year to $11.70. For the fiscal year 2025, the consensus revenue and EPS estimates of $279.25 billion and $13.33 indicate increases of 14.3% and 13.9%, respectively.

Advanced Micro Devices, Inc. (AMD)

Advanced Micro Devices, Inc. (AMD) has spearheaded innovation in high-performance computing, graphics, and visualization technologies for over half a century. The company's recent enthusiasm revolves around the general availability of AMD Instinct MI300X accelerators, boasting industry-leading memory bandwidth performance for generative AI.

AMD has made significant strides in expanding its AI software ecosystem as well. The company has unveiled the latest version of its open-source ROCm™ 6 software stack optimized for generative AI. AI ecosystem leaders such as Databricks, Essential AI, Lamini, and OpenAI leverage AMD Instinct accelerators to provide differentiated AI solutions.

The company has also announced the AMD Ryzen 8040 Series mobile processors, featuring an integrated neural processing unit (NPU) on select models for AI. In 2022, AMD pioneered the introduction of an x86 processor with an on-chip NPU with the AMD Ryzen 7040 series mobile processors.

Furthermore, the company unveiled the AMD Ryzen 8000G Series desktop processors at CES 2024, the industry's first desktop PC processors with a dedicated AI NPU. At Microsoft Ignite, AMD and MSFT showcased how AMD Instinct MI300X accelerators, AMD EPYC CPUs, and AMD Ryzen CPUs with AI engines enable new services and compute capabilities across various domains.

Such innovative product launches have propelled AMD's financial performance. In the fourth quarter of fiscal 2023, AMD's non-GAAP revenue increased 10.2% year-over-year to $6.17 billion. Its non-GAAP gross profit grew 9.6% from the year-ago value to $3.14 billion. Also, the company's non-GAAP net income and EPS rose 12.2% and 11.6% from the prior year's period to $1.25 billion and $0.77, respectively.

Looking ahead, for the fiscal year ending December 2024, Street anticipates AMD’s revenue to increase 13.4% year-over-year to $25.72 billion, with its EPS expected to reach $3.60, marking a 35.7% rise from the previous year. These optimistic analysts’ projections underscore AMD's position as a leader in driving innovation in the AI computing landscape.

ServiceNow, Inc. (NOW)

ServiceNow, Inc. (NOW) excels in cloud-based platforms revolutionizing digital enterprise operations. Its AI-driven solutions empower businesses to streamline services efficiently, commanding a significant market presence. With more than 8,100 clients, including 85% of Fortune 500 companies, NOW's impact is profound.

In the fourth quarter of fiscal 2023, NOW showcased exceptional performance, reporting a remarkable 27% growth in subscription revenue and closing 70 deals exceeding $1 million. Moreover, platform workflows surged by an impressive 40%, underscoring its efficacy in enhancing operational efficiency and reducing costs.

The company’s fourth-quarter revenue increased 25.6% year-over-year to $2.44 billion, with non-GAAP income from operations seeing a 31.8% uptick from the year-ago value to $717 million. Additionally, its non-GAAP net income and net income per share came in at $643 million and $3.11, up 38.6% and 36.4%, respectively, from the prior year's quarter.

Moreover, NOW is forging strategic partnerships to integrate advanced analytics and AI capabilities to deliver tailored solutions. Strategic Collaborations with DXC and Amazon Web Services exemplify its commitment to innovation, ensuring industry-specific, AI-powered applications.

By expanding its alliance with EY organization and Visa Inc. (V), NOW is poised to revolutionize AI compliance, governance, and payment services. The acquisition of UltimateSuite further strengthens its automation and AI capabilities, driving operational efficiencies.

With continued generative AI advancements, NOW anticipates a promising 25% revenue growth in 2024, offering stability and long-term growth potential. Analysts predict the company’s revenue will grow 21.4% year-over-year to $10.89 billion for the fiscal year ending December 2024, with its EPS expected to total $13.09, marking a significant 21.5% rise year-over-year.

UiPath Inc. (PATH)

UiPath Inc. (PATH) operates within the burgeoning robotic processing automation (RPA) market, offering software solutions tailored to automate administrative tasks and optimize workflow processes. With a robust clientele exceeding 2,000 customers, each investing a minimum of $100,000 annually, PATH demonstrates its pervasive presence and appeal across diverse sectors.

Remarkably, PATH witnessed a 26% increase in its customer base year-over-year among clients spending at least $1 million annually, underscoring its widespread adoption among SMEs and major corporations. The trend aligns with the escalating demand for AI-driven solutions in recent years.

In the fourth quarter that ended January 31, 2024, PATH achieved notable financial milestones, with its total revenue surging by an impressive 31.3% year-over-year, reaching $405.25 million. This substantial growth was mirrored in its non-GAAP operating income, soaring by 59.6% compared to the previous year’s period, amounting to $110.52 million.

Furthermore, PATH's non-GAAP net income and non-GAAP net income per share rose 55.4% and 53.3% year-over-year to $128.51 million and $0.23, respectively.

PATH's recent attainment of authorized status within the Federal Risk and Authorization Management Program (FedRAMP®) also signifies a pivotal milestone, poised to expand the adoption of UiPath Automation Cloud™ Public Sector within federal government agencies. This accreditation reflects PATH's commitment to enhancing operational efficiencies through AI-driven automation, particularly within the public sector.

Additionally, the extended partnership between PATH and Google Cloud heralds promising prospects for customers seeking to embark on their automation journey. With PATH now available on Google Cloud Marketplace, clients can seamlessly access PATH's Business Automation Platform, leveraging Google Cloud's robust infrastructure to deploy and scale automation initiatives effectively.

As Wall Street anticipates a 19% year-over-year revenue surge to $1.56 billion for the fiscal year ending January 2025, coupled with a 7% growth in EPS to $0.58, PATH stands poised to capitalize on its innovative solutions and strategic partnerships, further solidifying its position as a frontrunner in the RPA landscape.

Bottom Line

The artificial intelligence (AI) sector's trajectory is remarkable, with the global AI market reaching $515.31 billion in 2023 and projected to soar from $621.19 billion in 2024 to $2.74 trillion by 2032, boasting a CAGR of 20.4%. This growth is fueled by increased AI applications, partnerships, small-scale providers, evolving business structures, and personalized service demands.

However, recent market volatility has prompted caution among investors, leading to a downturn in NVDA's stock. This vulnerability highlights the fragility of sentiment-driven gains, signaling a potential turning point for the stock. Meanwhile, alternative AI stocks such as MSFT, AMD, NOW, and PATH are poised for potential growth.

MSFT has demonstrated robust financial performance and technological innovation, while AMD's advancements in AI hardware and software position it as a leader in the field. NOW's cloud-based solutions and strategic partnerships offer stability and long-term growth potential, and PATH's success in the RPA market and strategic alliances underscore its promising future.

As investors reevaluate their portfolios amid NVDA's decline, these alternative AI stocks present diversified opportunities to capitalize on the industry's continued growth.

Evaluating Buy and Sell Opportunities Post Visa-Mastercard's $30B Deal

Visa Inc. (V) and Mastercard Incorporated (MA) recently made headlines with a settlement estimated at $30 billion, marking a significant development in the U.S. retail and banking sectors. This antitrust settlement, one of the most significant in U.S. history, addresses long-standing disputes over credit and debit card fees stemming from a nationwide litigation that started in 2005.

V and MA have consented to various alterations in the short run as a component of the resolution. They agree that companies could decrease interchange rates - the charge merchants must pay for managing a credit card payment, also called “swipe rates” - by a minimum of 4 basis points (0.04 percent units) for three years. Swipe rates need to be seven basis points less than the average during the next five years.

In addition, it will become easier for merchants to guide customers toward other payment methods, and they can apply extra costs to premium credit cards with higher swipe fees. The settlement is still under the court’s endorsement and won't take effect until late 2024 or 2025.

Anticipated Impact on Merchants and Consumers

Patrick Payne, an assistant professor in personal and family financial planning at the University of Arizona in Tucson, does not expect “dramatic changes” from this agreement but thinks it might make premium cards more costly.

The cards are already costly. For example, the Chase Sapphire Reserve requires an annual fee of $550, but it offers benefits such as access to airport lounge membership and a $300 yearly travel credit. The annual fee for the American Express Platinum Card is almost $700.

Premium cards are more expensive for merchants, too. According to the National Retail Federation, swipe fees typically range around 2% per transaction but can go up as high as 4% for premium rewards cards. If the settlement gets approved, merchants will have the right to charge their customers extra when using premium Visa and Mastercard credit cards.

However, it's not certain whether stores will agree to increase the costs for these customers. Demanding an additional surcharge from specific customers, especially those who pay a lot, might harm relationships and business.

Now, what does it imply for the consumers, the ones who are actually swiping their cards? Probably not a lot, according to experts. “We’ll need to wait and see,” stated Ted Rossman, a senior industry analyst at Bankrate. “My honest assessment is that I don’t think this is a big deal for any party involved,” he said.

Rossman said the settlement’s impact is not much because it lowers swipe fees by less than 1% for a few years and caps the rates for five years. “That’s such a minimal change that I don’t think it’s going to make a big impact,” he remarked.

That said, critics argue that even though this new rule might control market powers, it does not necessarily solve issues related to dominance and setting fees.

Beverly Harzog, the writer of “The Debt Escape Plan: How to Free Yourself from Credit Card Balances, Boost Your Credit Score, and Live Debt-Free,” shared that she doesn't think there will be much alteration among credit card issuers following the agreement. This is partly due to alterations not being a “permanent fix.”

She mentioned how three- and five-year spans allow very little time for these firms to implement substantial changes.

Additionally, Rossman adds that the settlement is “a flash point in a larger war,” maybe the most crucial fight yet is about the Credit Card Competition Act. Democratic Senator Dick Durbin from Illinois suggested this law, and it might bring in more competition to this area.

Rossman believes that if Durbin’s bill becomes law, it would significantly affect the financial sector more than the recent settlement. He also mentions how improbable it is for this bill to be approved at the present time. “That's the type of thing that could really change credit cards,” he added.

Bottom Line

Visa and Mastercard are notable players in the consumer financial industry. They are primarily known for their dominance in high-margin businesses, characterized by a consistent increase in revenue and profit fueled by consumer spending. This aspect has garnered significant popularity among investors, as both V and MA stocks have delivered impressive returns over the years.

V and MA have not provided specific details on how the recent settlement could impact their performance in the coming years. Investors may have to wait for their next quarterly reports to gain more insight.

While both companies are financially strong enough to handle the effects of the settlement, the potential savings of $30 billion for merchants over five years translate to a significant annual impact of $3 billion for each firm. This could have substantial implications, potentially resetting revenue levels lower than their current status and leading to slower growth rates.

Besides interchange fees as the primary income source, V and MA earn money from other places, such as small-business solutions. However, most of their revenue still comes from interchange fees.

Despite these potential challenges, the fundamental business model of Visa and Mastercard remains unchanged. However, the settlement’s financial impact underscores the need for investors to closely monitor developments and assess how they could influence the companies’ financial performance and growth trajectory moving forward.

Additionally, regardless of the settlement’s unknowns, V and MA shares still trade at premiums over their peers. For instance, V’s forward non-GAAP P/E of 28.08x is 162% higher than the industry average of 10.54x. Also, its forward EV/Sales and EV/EBITDA multiples of 15.70 and 22.23 compared to respective industry averages of 3.02 and 10.52.

Likewise, MA’s forward non-GAAP P/E of 33.24x is 215.4% higher than the industry average by 10.54x. Additionally, the stock’s forward EV/sales and EV/EBITDA multiples of 16.12 and 26.24 unfavorably compared to the industry averages of 3.02 and 10.52, respectively.

Moreover, both V and MA exhibit notable volatility, with V boasting a 60-month beta of 0.96 and MA standing at 1.08. Considering these factors, investors may benefit from waiting for further clarity on the settlement's repercussions before scooping up shares of V and MA.

Will Google's UPI Expansion Make GOOGL a Must-Have Tech Stock?

Alphabet Inc. (GOOGL) has decided to help globalize India’s home-grown payments service, Unified Payments Interface (UPI). This instant real-time payment system was developed by the National Payments Corporation of India (NPCI) in 2016 and allows individuals to use a single app to make peer-to-peer payments to or from multiple bank accounts.

Third parties can include UPI in their payment systems or apps, with payments flowing smoothly between all participants. The interface has more than 300 million active users and manages around 10 billion transactions per month. The traffic is not far behind Mastercard Inc. (MA) and nearly half the volume that Visa Inc. (V) handles.

UPI is ubiquitous in India and is one of the largest retail payment systems in terms of transaction value and volume. The payment service has already been made available in other nations, partly to assist Indian tourists as they travel and to facilitate cross-border transactions.

Now, Google has decided to spread these use cases around the globe. On January 18, 2024, Google Pay India and NPCI International Payments Ltd (NIPL), a wholly owned subsidiary of NPCI, signed a Memorandum of Understanding (MoU) to broaden the transformative impact of UPI to nations beyond India.

The MoU has three key objectives. Firstly, it seeks to expand the use of UPI payments for travelers out of India, allowing them to make transactions abroad seamlessly and conveniently. Secondly, it will help establish UPI-like digital payment systems in other countries, offering a model for seamless financial transactions.

Lastly, the MoU intends to ease the process of remittances between countries by utilizing the UPI infrastructure, thereby simplifying cross-border financial exchanges. These listed objectives are expected to accelerate UPI’s global acceptance, providing foreign merchants easy access to Indian customers who will no longer have to depend only on foreign currency and credit or forex cards to make payments.

“We are delighted to support NIPL towards expanding the reach of UPI to international markets. Google Pay has been a proud and willing collaborator to NPCI and the financial ecosystem, under the regulator’s guidance, and this collaboration is another step towards our commitment to making payments simple, safe and convenient,” said Deeksha Kaushal, Director, Partnerships, Google Pay India.

With this strategic collaboration, Google will not only create new digital finance opportunities for itself but also support the Indian government’s initiative to take UPI global.

India’s Digital Diplomacy Strategy

The recently signed MoU aligns with NPCI’s endeavor to boost India’s position in the global digital payment landscape. India’s Prime Minister Narendra Modi has been vocal on the government’s ambitions to take UPI global. At the BRICS summit in August last year, Modi noted that UPI had expanded to other nations, including the UAE, Singapore, and France.

“There are many possibilities of working on this with BRICS countries as well,” he stated.

Further, in an exclusive interview with Business Today, Modi highlighted the fact that 46% of global digital payment transactions today are in India, which he described as “one shining example of the success of our policies,” adding that “the world today sees India as the incubator of innovation.”

Last year, India also topped the global remittance charts. According to a recent report, the World Bank noted that India’s remittance inflows totaled $125 billion in 2023, the highest in the world and well ahead of Mexico ($67 billion) and China ($50 billion). Annual growth was a brisk 12.4%.

GOOGL’s stock has advanced more than 19% over the past six months and nearly 57% over the past year.

Here are other factors that could impact GOOGL’s performance in the near term:

Google’s Remarkable AI Progress

2023 has been a year of significant progress for GOOGL in the field of Artificial Intelligence (AI) research and its practical applications. With generative AI, the company is reimagining its products and services. In February 2023, Google launched Bard, its conversational AI service powered by LaMDA. This tool can generate text, translate languages, write different kinds of creative content, and more.

In May, the tech giant reviewed the results of months and years of its foundational and applied work announced on stage at Google I/O. This included its next-generation large language model (LLM), PaLM 2, which is built on advanced compute-optimal scaling, scaled instruction-fine tuning, and enhanced dataset mixture.

By fine-tuning and instruction-tuning PaLM 2 for multiple purposes, the company was able to integrate it into more than 25 Google products and features, including an update to Bard, which enabled multilingual capabilities.

In addition, Search Generative Experience (SDE) uses LLMs to reimagine how to organize information and help people navigate through, creating a more fluid, conversational interaction model for its core Search product, MakerSuite, an easy-to-use prototyping environment for the PaLM API powered by PaLM 2, and many more developments.

The company also introduced DuetAI, its AI-powered collaborator that offers users assistance when they use Google Workspace and Google Cloud.

In June, Google unveiled Imagen Editor, which offers the ability to use region masks and natural language prompts to edit generative images. Later last year, Imagen 2 was released, which improved outputs through a specialized image aesthetics model based on human preferences for qualities like lighting, exposure, and framing.

Further, on November 22, in collaboration with YouTube, the company announced a new DeepMind model, Lyria. It is the most advanced AI music generative model to date that will create vocals, lyrics, and background tracks mimicking the style of popular artists. This model is available on YouTube through two distinct AI experiments – DreamTrack for Shorts and Music AI tools.

Then, in December, GOOGL launched Gemini. Gemini will include a suite of three different sizes: Gemini Ultra, its largest, most capable category; Gemini Pro, which scales across a wide range of tasks; and Gemini Nano, which will be used for specific tasks and mobile devices.

Robust Last Reported Financials

For the third quarter that ended September 30, 2023, Google parent Alphabet’s revenue came in at $76.69 billion, beating analysts’ estimate of $75.73 billion. This compared to revenue of $69.09 billion in the same quarter of 2022.

The company’s Google advertising revenues were $59.65 billion, an increase of 9.5% year-over-year, and its Google Cloud revenues grew 22.5% from the year-ago value to $8.41 billion. Its income from operations came in at $21.34 billion, up 24.6% from the prior year’s quarter.

GOOGL’s income before income taxes rose 30.6% year-over-year to $21.20 billion. The company’s net income rose 41.5% year-over-year to $19.69 billion. It posted net income per share of Class A, Class B, and Class C stock of $1.55, compared to the consensus estimate of $1.45, and up 46.2% year-over-year.

Furthermore, as of September 30, 2023, the company’s cash and cash equivalents stood at $30.70 billion, compared to $21.88 billion as of December 31, 2022. Its current assets were $176.31 billion versus $164.80 billion as of December 31, 2022.

Sundar Pichai, Alphabet’s CEO, said, “I’m pleased with our financial results and our product momentum this quarter, with AIdriven innovations across Search, YouTube, Cloud, our Pixel devices and more. We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”

Solid Historical Growth

GOOGL’s revenue grew at a 20.1% CAGR over the past three years. Over the same period, the company’s EBITDA and operation income (EBIT) improved at CAGRs of 26% and 32.7%, respectively. Further, its net income and EPS grew at respective CAGRs of 23.2% and 26.3% over the same timeframe.

Additionally, the company’s total assets grew at a CAGR of 9.9% over the past three years, and its levered free cash flow improved at a 36% CAGR.

Optimistic Analyst Estimates

Analysts expect GOOGL’s revenue for the fourth quarter (ended December 2023) to increase 12% year-over-year to $85.20 billion. The consensus EPS estimate of $1.60 for the current quarter indicates a 52.21% year-over-year improvement. Moreover, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

In addition, Street expects GOOGL’s revenue and EPS for the fiscal year (ended December 2023) to increase 8.1% and 26% year-over-year to $305.77 billion and $5.74, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.3% and 15.9% year-over-year to $340.26 billion and $6.66, respectively.

High Profitability

GOOGL’s trailing-12-month gross profit margin of 56.12% is 14.1% higher than the 49.18% industry average. Also, the stock’s trailing-12-month EBIT margin and net income margin of 27.42% and 22.46% are considerably higher than the industry averages of 8.56% and 3.27%, respectively.

Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 25.33%, 17.36%, and 16.82% are favorably compared to the respective industry averages of 3.53%, 3.48%, and 1.38%. Its trailing-12-month levered FCF margin of 23.81% is 200.2% higher than the industry average of 7.93%.

Bottom Line

Alphabet’s shares climbed nearly 58% last year as tech stocks rallied after a disastrous 2022, driven partly by excitement about AI. The company reported an impressive revenue growth of 11%, returning to double digits for the first time in more than a year alongside a recovery in the digital ad market. Sales and profit both surpassed analysts’ expectations.

Moreover, for GOOGL, 2023 was a remarkable year of groundbreaking advances in AI and computing. Last week, in a memo titled “2024 priorities and the year ahead” that staffers received, Google CEO Sundar Pichai stated that the company has ambitious goals and will be investing in its big priorities this year. This includes AI and spans Google’s consumer to enterprise platforms.

Analysts at JP Morgan named GOOGL as one of their top picks for 2024, with AI primarily assisting in the stock’s significant growth.

GOOGL's partnership with the National Payment Corporation of India (NPCI) is geared toward extending India's UPI's reach globally, which is expected to yield advantages for the company.

This partnership seems like a suitable strategic move that would support a vital policy objective of the Indian government to broaden the digital payments landscape and provide Google Pay with new growth opportunities.

Considering these factors, GOOGL seems to be a must-have stock for any investment portfolio.

Top 4 Christmas Stocks to Buy in 2023

As the festive season ushers in, thoughts gravitate toward the traditions of exchanging gifts, feasting with family, and warming up by the fireside, all while the holiday shopping spree kick-starts with much vivacity.

The holiday period invariably translates to a considerable economic surge for retailers and related sectors, starting with "Black Friday" – a day marked in retail history for transfiguring from the “red” of losses into the “black” of profits. This year's consumer expenditure reached an unprecedented high, with $9.8 billion splurged on Black Friday deals and an outstanding $12.4 billion on Cyber Monday.

A record-breaking 200.4 million consumers shopped during the five-day holiday weekend, extending from Thanksgiving Day through Cyber Monday, outpacing last year's peak of 196.7 million. As per the National Retail Federation (NRF), the average spend was $321.41 on holiday-related purchases throughout the Thanksgiving weekend. Toys, electronics, and gift cards emerged as the most coveted items.

An unprecedented festive surge is projected this December as retailers anticipate record-breaking consumer expenditure. This period, often correlated with the 'Santa Rally,' generates a stock market surge during the concluding week of December, extending into the New Year. LPL Financial found that since 1950, a Santa Claus rally has occurred around 79% of the time.

These staggering statistics oppose the predictions of some economic analysts who warn of an imminent recession within the U.S. and expect the current equity rally to stumble as the year concludes.

The holiday period shopping traditionally elevates sales for retailers and associated businesses, resulting in potential stock price increases. The year-end rally boosts investors’ portfolios, whereas professional traders often regard it as crucial when calculating their end-of-year bonuses. There is no doubt that the Santa Claus rally this year would be broadly embraced, given the volatilities witnessed.

Investment focus is increasingly geared toward stocks providing substantial opportunities in the immediate future. Some stocks could be more profitable than others if secured before their price rise. Hence, many investors opt for Christmas stocks to capitalize on the bustling holiday shopping season.

Given this backdrop, let us delve into an in-depth analysis of Amazon.com, Inc. (AMZN), Visa Inc. (V), Walmart Inc. (WMT), and Etsy, Inc. (ETSY) now.

Amazon.com, Inc. (AMZN)

Amazon has established itself as a global behemoth, wielding substantial market dominance fostered by its vast network. As we approach the holiday season, there is strong anticipation that the retail stock will experience a considerable rise.

This prediction comes from AMZN’s record-breaking sales in November, with one billion items sold over 11 days of extended promotional deals. This impressive feat was achieved despite the "biggest ever global strike" orchestrated by Make Amazon Pay, an activist campaign that advocated for improved pay and better working conditions for laborers.

According to AMZN, customers purchased more than 500 million products via independent sellers during the holiday shopping festivities and an exponential growth in Prime membership signups throughout this period was witnessed.

The company has disclosed that shoppers saved nearly 70% more on their purchases than the previous year, with promises of "millions more deals" being made available until December 24.

The company attributes much of its success to a large, loyal customer base, who trust the brand and greatly value its services. AMZN's variety of client benefits during the festive season – expeditious delivery, discounts, enticing deals, streamlined return and refund policies, and rewards, enhance repeat purchases and encourage referrals.

With recent inflationary pressures easing, consumer sentiments are showing signs of improvement, bolstering the potential for increased spending. Combining these factors, December could be a highly profitable month for AMZN.

For the fiscal fourth quarter ending December, its revenue is expected to grow 11.2% year-over-year to $165.85 billion, while EPS is expected to increase significantly year-over-year to $0.76.

Wall Street analysts expect the stock to reach $177 in the next 12 months, indicating a potential upside of about 20%. The price target ranges from a low of $145 to a high of $210.

Visa Inc. (V)

V, a leading fintech corporation, is commanding in the global credit and debit card markets. Acting as an essential intermediary between purchasers and vendors, V conducted over 192 billion transactions in 2022 across 160 nations.

The company's significant role has generated substantial profits for V and its shareholders. For the fourth fiscal quarter of 2023, the firm reported revenues of $8.61 billion, a 10.6% year-over-year increase. Its income amounted to $4.68 billion, with earnings per share at $2.27.

V’s unique business model allows consumers desiring to postpone their holiday expenses with minimum risk and maximum benefit. V profits whenever individuals make higher charges on their cards, with both transaction value and quantity contributing to the income. As V does not offer direct loans to consumers, the impact of defaulting is substantially lower.

Expressing high hopes for the company's future, V's CEO Ryan McInerney stated, "There is tremendous opportunity ahead, and I am as optimistic as ever about Visa’s role in the future of payments.”

However, America faces a mounting credit card debt crisis. As of September 2023, the total card balance reached a record high of $1.08 trillion. Strikingly, the average credit card interest rate touched 27%, representing the highest figure in nearly three decades.

As we enter the holiday season, consumer spending on credit cards is expected to rise. Deloitte reports that the average holiday shopper anticipates expending $1,652 this year, the most considerable amount seen in the past three years. Much of this spending will be charged to cards. In an October survey of 1,036 consumers by CardRates.com, 38% indicated that they anticipated carrying holiday credit card debt into the new year.

Although increased consumer debt translates into more risks for V, the potential spending slowdown also threatens the company as it has fewer tools for growth. Despite the company's valuation not being as high as in the past, this could represent an excellent opportunity for those aiming to take advantage of the inevitable credit card spending surge over the festive season.

Analysts expect V’s revenue and EPS for the quarter ending December 2023 to increase 7.7% and 7.3% year-over-year to $8.54 billion and $2.34, respectively. Moreover, Wall Street analysts expect the stock to reach $277.47 in the next 12 months, indicating a potential upside of 8.9%. The price target ranges from a low of $243 to a high of $295.

Walmart Inc. (WMT)

WMT has evolved into a powerful force within the omnichannel market. Strategic acquisitions of companies like Bonobos, Moosejaw, and Parcel and collaborative partnerships with industry heavyweights like Shopify and Goldman Sachs bolstered this transformation. Further expansion efforts, including implementing delivery systems Walmart + and Express Delivery, and investing in Flipkart – a renowned e-commerce platform – are a testament to this ongoing evolution.

The innovative strategies have consolidated WMT's position within the turbulent retail market, enabling it to remain resilient and competitive in an ever-changing industry landscape. WMT ensures its sustainability and competitiveness in this evolving ecosystem by continually adapting and initiating changes.

The retail giant experienced increased customer footfall and elevated spending throughout the third quarter, alongside improvements in operating margin and cash flow. These constructive developments in WMT’s performance indicate ample liquidity to invest in growth and reinforce its dominating market presence.

As WMT approaches the holiday season with substantial customer traffic, it stands poised to generate profitable returns. For the quarter ending January 2024, its revenue is expected to increase 3.9% year-over-year to $169.09 billion, while EPS is anticipated to reach $1.64. Further enhancing its appeal, the company currently offers a dividend yield of 1.49%, making its stock a more attractive option to potential investors.

Wall Street analysts expect the stock to reach $180.79 in the next 12 months, indicating a potential upside of about 18%. The price target ranges from a low of $163 to a high of $210.

Etsy, Inc. (ETSY)

Esteemed as an online destination for unique handcrafted and vintage goods, ETSY is the perfect marketplace for customers searching for original gift ideas, especially during the active winter holiday season. The extensive assortment of products on ETSY – encompassing everything from jewelry and apparel to toys and home décor – caters to its impressive 97.3 million active users through 8.8 million dynamic sellers.

Operating under a distinctive business model that leverages network effects and switching costs generates intrigue. However, sustained growth is crucial in maintaining investor enthusiasm. Despite firmly standing by its unique market position within a vast potential landscape, ETSY's obstacles in augmenting gross merchandise sales (GMS) post-pandemic suggest a potential limitation in product demand.

For the fiscal fourth quarter ending December, its revenue and EPS are expected to increase 1.8% and 17.1% year-over-year to $821.75 million and $1.34, respectively.

With a focus on unique gifts and crafts, ETSY is well-positioned to experience significant stock elevation during the seasonal gifting period, complimented by the ongoing market recuperation and declining inflation trends.

Visa Inc. (V) Q4 Earnings Assessment: Tracking the Financial Services Titan's Trajectory

Financial services giant Visa Inc. (V) beat revenue and earnings forecasts in its last reported quarter, propelled by a sustained resurgence in international travel post-pandemic. The results, announced following market closure on October 24, 2023, illustrate a persistent global inclination towards “Tap to Pay” transactions in in-store locations.

Despite escalating interest rates, a measure implemented by the Fed as part of its strategy to curtail inflation, American consumer spending has shown a striking tenacity. A surge in consumer expenditure prompted substantial growth in sectors like travel and retail, benefitting credit card companies like V.

The Federal Reserve Bank of New York discloses that American credit card balances have reached an unprecedented pinnacle of $1 trillion this year. In the second quarter of 2023 alone, credit card balances experienced a rise of $45 billion, marking a 4% increase year-over-year. According to Statista, around 242 billion global purchase transactions involved V payment cards during 2022, an average of nearly 0.66 billion transactions daily.

V's growth can also be attributed to the persistent shift towards digital payments, along with an extension of the company's service offerings – factors which are believed to have significantly boosted the fiscal fourth quarter performance.

For the fiscal fourth quarter (ended September 30, 2023), V’s net revenues soared 10.6% year-over-year to $8.61 billion, propelled by the burgeoning growth in payments volume, cross-border volume, and processed transactions.

With $3.20 trillion in payment volumes, V cemented its position as the unquestionable pacesetter in the payment realm. The company registered a 9% annual surge in payment volume while processed transactions touched 55.96 billion, seeing a 10% increase for both the fourth quarter and the full fiscal year. Excluding intra-European transactions, cross-border volume swelled 18% in the fourth quarter and an impressive 25% across the fiscal year.

Credit volumes reported an 8% growth, hitting $1.6 trillion during the fiscal fourth quarter, matching the debit volumes that rose by 9%. The company operates with over 8.5 billion endpoints, 3 billion cards, 3 billion accounts and 2.5 billion digital wallets in circulation.

Throughout the year, durable consumer spending patterns persisted, supplemented by the ongoing recovery of cross-border travel spending in comparison to 2019 levels, which resulted in sturdy growth across V's new flows and value-added services sectors.

V’s non-GAAP net income for the company reached $4.82 billion, and earnings per share stood at 2.33, signaling an uptick of 17.7% and 20%, respectively.

Let’s now direct our attention to other factors that may steer the course of the company's stock performance in the future:

Robust Growth

Over the past three and five years, V’s revenue grew at 11.6% and 9.7% CAGRs, respectively. Its EBITDA for the same periods grew at CAGRs of 12.1% and 10.2%, respectively. The company’s levered FCF grew at 10.3% and 9.9% CAGRs over the past three and five years, respectively.

Growing Institutional Ownership

V’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their V stock holdings.

Institutions hold roughly 95.2% of V shares. Of the 3,575 institutional holders, 1,577 have increased their positions in the stock. Moreover, 164 institutions have taken new positions (4,442,807 shares).

Optimistic Analyst Estimates

For the quarter ending December 2023, its revenue and EPS are expected to surge 10% and 9.3% year-over-year to $8.73 billion and $2.38, respectively. The company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

Price Performance

The stock has gained over 12% year-to-date and about 23% over the past year. Moreover, V’s stock is trading above its 200-day moving average of $231.39, indicating an uptrend.

However, Wall Street analysts expect the stock to reach $279.38 in the next 12 months, indicating a potential upside of 19.1%. The price target ranges from a low of $240 to a high of $310.

Bottom Line

As a leading player in the payment processing industry, the V's services are employed every time an individual uses a V-branded credit card. This translates into millions of daily transactions – each contributing to the company's revenue.

The company has exhibited robust fiscal health and margins that make its business model highly enticing to investors. With its payment network firmly established, V can keep operational costs at bay, resulting in significant profits.

The strength and profitability of V's business elucidate its ability to increase its dividend payments consistently. Recently, V’s board of directors announced a 16% increase in its quarterly cash dividend to $0.520 per share of Class A common stock, payable to shareholders on December 1, 2023.

V pays a $1.80 per share dividend annually, which translates to a 0.78% yield on the current share price. Its four-year average dividend yield is 0.65%. The company’s dividend payouts have grown at a CAGR of 14.5% over the past three years and 16.9% over the past five years. The company boasts of a consistent record of dividend distribution for 14 consecutive years.

Moreover, in October, V’s board of directors authorized a new $25 billion multi-year class A common stock share repurchase program.

Given V’s robust profitability, optimistic analyst estimates, attractive returns to shareholders, and solid growth over the past years, it could be a wise portfolio addition now.