Tuesday, May 31, 2022, at the Nasdaq Market site in the Times Square area of New York.
Michael Nagle | Bloomberg | Getty Images
The Nasdaq is currently just 6.5% below its all-time high set in November 2021.
The big story across the industry this year was a return to risk with the Federal Reserve’s suspension of interest rate hikes and a stabilizing outlook for inflation. The company also benefited from cost-cutting measures introduced late last year to focus on improving efficiency and profit margins.
“Once the Fed reverses its interest rate hikes, companies can go back to being a proper pricing company, considering how much profit they make and what multiples to set,” Kevin said. said. Simpson, founder of Capital Wealth Planning, said Tuesday on CNBC’s “Halftime Report.” “It could last until 2024.”
The tech industry will receive a major boost from the macro environment and the prospect of lower borrowing costs, while the emergence of generative artificial intelligence is increasing excitement in the sector, prompting companies to invest in what is seen as the next big thing. Ta.
The biggest winner in the AI rush was Nvidia. The company’s stock price soared 239% in 2023 as major cloud vendors and deep-pocketed startups snapped up the company’s graphics processing units (GPUs) needed to train and run advanced AI models. In the first three quarters of 2023, Nvidia generated $17.5 billion in net income, more than six times the year-ago rate. Revenue tripled in the latest quarter.
Nvidia CEO Jensen Huang said in March that AI’s “iPhone moment” has begun.
“Startups are competing to build disruptive products and business models, while incumbents are responding,” Huang said at Nvidia’s developer conference. “Generative AI has created a sense of urgency for companies around the world to develop their AI strategies.”
Consumers are now learning about generative AI thanks to OpenAI’s ChatGPT, which the Microsoft-backed company released in late 2022. Chatbots allow users to type a few words of text to start a conversation and generate sophisticated responses instantly.
Developers have begun using generative AI to create tools for booking travel, creating marketing materials, enhancing customer service, and even coding software. Microsoft, Google, Meta, and Amazon have touted significant investments in incorporating generative AI across their product suites.
Amazon CEO Andy Jassy said on an October earnings call that generative AI is likely to generate tens of billions of dollars in revenue for Amazon Web Services over the next few years. He added that the model is used to predict inventory and establish transportation routes. Drivers help third-party sellers create product pages and advertisers generate images.
“We are amazed at the pace of growth in generative AI,” Jassy says. “Our generative AI business is growing very rapidly. By almost any measure, this is already a fairly significant business for us. Still, the company is still in a relatively early stage. I can say that.”
Amazon stock rose 81% in 2023, its best year since 2015.
Microsoft investors have enjoyed the biggest rally this year since 2009, with the company’s stock up 58%.
In addition to investing in OpenAI, Microsoft has integrated the technology into products such as Bing, Office, and Windows. Copilot has become the brand for the company’s wide range of generative AI services, and CEO Satya Nadella described Microsoft last month as: “Co-Pilot Company”
“Microsoft’s partnership with OpenAI and subsequent product innovations through 2023 will change the dynamics of the market,” said Michael Tulin, a Wells Fargo analyst who recommends buying the stock. ” in a Dec. 20 memo to customers. “Many now see his MSFT as the outright leader in his early AI wars (outpacing his AWS, the market share leader).”
Meanwhile, Microsoft is increasing its profits at a historic pace. Microsoft announced in its latest earnings report that its gross profit margin exceeded 71% for the first time since 2013, when Steve Ballmer ran the company. Microsoft found ways to run its data centers more efficiently and rely less on hardware, resulting in higher margins in segments including Windows, Xbox, and search.
Microsoft CEO Satya Nadella (right) speaks as OpenAI CEO Sam Altman (left) looks on at the OpenAI DevDay event on November 6, 2023 in San Francisco, California. Mr. Altman gave the keynote address at his first-ever Open AI DevDay conference.
Justin Sullivan | Getty Images
After Nvidia, Meta stock had the biggest rise in value among mega-tech companies, soaring almost 200%. Nvidia and Meta were by far the top two companies in the S&P 500.
Meta’s rise comes after CEO Mark Zuckerberg, who founded the company in 2004, announced in February that the stock had plunged 64% in 2022, largely due to three consecutive quarters of declining revenue. , said that 2023 will be the company’s “year of efficiency.”
The company cut more than 20,000 jobs, proving to Wall Street that it’s serious about streamlining spending. Growth then rebounded as Facebook gained market share with digital advertising. In the third quarter, Meta recorded his 23% growth, the steepest increase in his last two years.
Like Meta, Uber didn’t exist during the dot-com bust. The ride-hailing company was founded in 2009 at the height of the financial crisis and became a darling of the tech world in the years that followed, when investors prioritized innovation and growth over profits.
Uber went public in 2019, but has long battled the idea that it would never turn a profit because so much of its revenue goes into paying drivers. But this economic model finally started working for both ride-sharing and food delivery businesses late last year.
All of this helped Uber achieve a major milestone for investors earlier this month when its stock was added to the S&P 500. According to S&P rules, index members must have positive returns in the most recent quarter and the previous four quarters combined. Uber reported net income of $221 million on revenue of $9.29 billion in the third quarter, bringing the past four quarters together to more than $1 billion in profit.
Uber stock rose to record levels this week and is up 149% for the year. The company’s stock, listed on the New York Stock Exchange, ended the year as the sixth highest gainer among the S&P 500.
Despite the rally in tech stocks in 2023, the year lacked new opportunities for retail investors. After a disastrous 2022 for technology IPOs, very few stocks hit the market in 2023. His three most high-profile IPOs, Instacart, Arm, and Klaviyo, all took place during his one week in September.
Most companies in the later stages of the IPO pipeline have more work to do. Public markets remain unwelcoming for cash-guzzling companies that have yet to prove they can generate sustainable profits. This is a problem for many startups that raised mountains of cash during the zero interest rate era of 2020 and 2021.
Even profitable software and internet companies have contracts with multiple companies. That means the valuations achieved in the private markets will require many startups to take a haircut when they go public.
byron lichtensteinThe managing director of venture firm Insight Partners called 2023 the “Great Reset.” He said companies best positioned for an IPO are unlikely to debut until late 2024 at the earliest. Until then, the company will continue to make necessary preparations, such as hiring independent directors and making sure that preparations are in place, including spending on IT and accounting.
“The dynamics are where the expectations were in 2021 and what the price was paid at that time,” Lichtenstein said in an interview. “We’re still battling a bit of a hangover.”
—CNBC’s Jonathan Vanian contributed to this report
clock: Interest rate-sensitive tech stocks are back
