History Suggests the Nasdaq May Rise in 2025: Two AI Stocks to Consider

Historical data from CNBC, stretching back to 1980, indicates that the Nasdaq and other major stock indexes often experience gains in the months after a presidential election. This pattern appears to be repeating in 2024, with the Nasdaq recording approximately a 10% increase since Donald Trump's election on November 5. A new administration often brings reduced political uncertainty, encouraging investors to feel more secure in holding various assets.

While there's no certainty regarding the continuation of the Nasdaq's upward trend into 2025, increasing investment in AI technology could provide a boost. Two stocks in particular, Advanced Micro Devices and Amazon, stand out as promising options for investors looking to benefit from potential market growth next year. Let's take a closer look.

1. Advanced Micro Devices

Despite shares falling 13% this year, AMD is a well-regarded chipmaker that has not fully capitalized on the generative AI boom, even though it plays a crucial role in providing hardware for the industry. Its diversified business model makes it an appealing alternative to Nvidia, and its reasonable valuation adds extra appeal for investors.

In the third quarter, AMD reported a slight 17% year-over-year increase in revenue to $6.8 billion. Nevertheless, this figure obscures the remarkable growth in its data center segment, which surged 122% to $3.5 billion, largely due to the sale of advanced graphics processing units (GPUs) used for AI applications. The management plans to sustain this growth trajectory by introducing new, high-performance chips, such as the Instinct MI325X series, aimed at competing with Nvidia.

Data center sales contribute 51% of AMD's total revenue, offering a broader diversification compared to Nvidia, which derives approximately 88% of its revenue from the data center division. Although AMD's traditionally slower growth in AI-related sales could suggest vulnerability, this broader portfolio may also buffer the company against a potential industry downturn.

Additionally, AMD's forward price-to-earnings (P/E) ratio of 25 is lower than Nvidia's roughly 31, making AMD an attractive option from a valuation perspective.

2. Amazon

Whereas AMD showcases diversification within tech hardware, Amazon exemplifies diversification on a grander scale, spanning e-commerce, cloud computing, and AI infrastructure. The company's recent cost-cutting initiatives have positioned it well to achieve its long-term goals and enhance shareholder value.

Under CEO Andy Jassy, who has led the company since early 2021, Amazon has shifted from an aggressive growth strategy to one focused on sustainable profitability. Years of restructuring, including layoffs and improving its fulfillment network, have significantly enhanced its operational efficiency.

Amazons third-quarter results reflected this progress, with an 11% year-over-year increase in revenue to $158.9 billion and a remarkable 64% rise in operating income to $17.4 billion.

Amazon Web Services (AWS), its cloud computing division, remains vital to the company’s financial health, contributing $10.4 billion in operating income. With ample room for continued expansion, AWS offers Amazon a unique advantage in the AI landscape, allowing it to provide Nvidia GPU computing resources to AI startups. This strategy mitigates some risks associated with competing in the more volatile software sector.

Additionally, Amazon is developing its custom AI chips known as Trainum and Inferentia, which help deliver cost savings for specific workloads and reduce reliance on suppliers like Nvidia.

Staying Cautious Amid Speculation

Since the introduction of OpenAI's ChatGPT in late 2022, the generative AI landscape has created wealth for many investors. The excitement surrounding AI could continue into 2025. Nonetheless, it's essential for investors to recognize that AI remains a highly speculative field, and there's uncertainty regarding how long companies will keep their high investment levels in research and technology.

Both AMD and Amazon are well-positioned for long-term investment, offering investors exposure to robust sectors while maintaining diversified business models that could protect against downturns in the market.

Nasdaq, AI, Stocks