The Nasdaq’s Unstoppable Momentum: Why 2025 Could Be a Breakout Year
The Nasdaq Composite has been on a tear, with a remarkable 43% gain in 2023 followed by an impressive 30% surge in 2024. This exceptional performance has led many to wonder if the index is due for a correction in 2025. However, historical data suggests that the opposite may be true.
The Power of Momentum
Since 1972, every year with returns of 30% or higher has been followed by an average return of 19%. This phenomenon is largely attributed to the momentum factor, where strong performance breeds further growth. While past results are no guarantee of future success, the odds are stacked in favor of the Nasdaq continuing its upward trajectory in 2025.
The AI Boom: A Key Driver of Growth
The Nasdaq’s recent success can be attributed, in part, to the artificial intelligence (AI) boom. Many AI-related stocks, such as Nvidia, have seen their valuations soar. However, one undervalued gem remains hidden in plain sight: Alphabet, the parent company of Google, YouTube, and other technology assets.
Alphabet: A Sleeping Giant
Despite concerns about losing market share to new AI tools like ChatGPT, Alphabet’s search engine dominance remains unchallenged, with a 90% market share worldwide. The company is poised to leverage its vast user base and cutting-edge AI products, such as search result summaries, Gemini chatbot, and Google Lens, to drive growth.
A Multifaceted Growth Story
Alphabet’s revenue growth is driven by multiple factors, including:
- Google Search: Revenue grew 12% year over year to $49 billion, with opportunities for further expansion.
- YouTube: The video streaming platform continues to gain market share, with revenue up 12% last quarter.
- Google Cloud: The segment is growing rapidly, with revenue up 35% year over year, and is expected to reach $100 billion in annual revenue in the near future.
- Operating Margin Expansion: Alphabet’s operating margin hit 32% last quarter, up from 28% a year ago, indicating increased efficiency.
- Share Repurchases: The company has reduced its share count by 11% over the past five years, boosting earnings per share (EPS).
A Compelling Investment Opportunity
With Alphabet’s EPS expected to compound at a double-digit rate over the next five years, and its stock trading at a price-to-earnings ratio (P/E) of 26, below the S&P 500 and Nasdaq Composite averages, this hypergrowth AI stock presents a compelling investment opportunity.
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