A stock market sell-off in 2022 and residual economic challenges this year have highlighted the importance of investing with a long-term perspective. Doing so can help safeguard your investments from what often turn out to be temporary economic declines.
Numerous stocks got dragged down over the course of last year, in large part because inflation reached levels not seen in 40-plus years and interest rates were increased to get that outsized inflation under control. Investors who bought reliable growth stocks with plans to not sell for several years saw their stocks dip in price but were less worried because they had no intention of selling those stocks.
Then, those investors were rewarded in 2023 as the market bounced back. Countless stocks soared alongside renewed interest in booming markets like artificial intelligence (AI).
Two reliable growth stocks, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT), saw price dips, along with many other strong stocks last year but have surged in 2023. These companies have potent positions in tech and will likely continue rewarding patient investors with significant gains in the new year.
Here's why these two growth stocks are at the top of my list as we head into 2024.
Alphabet has enjoyed immense growth over the years, with its stock up 141% since 2018 and annual revenue rising over 100%. The company's majority market share in search engines has given it the funds and brand recognition to expand to several lucrative markets, which will likely keep Alphabet expanding in 2024 and beyond.
Brands like Google, Android, and YouTube have garnered billions of users and present almost endless advertising opportunities. As a result, Alphabet has become an advertising powerhouse, significantly profiting from the $680 billion digital advertising industry.
In the third quarter of 2023, Alphabet's revenue rose 11% year over year, beating Wall Street forecasts by $980 million. The company benefited from a return to growth in the digital ad market, which suffered from macroeconomic headwinds the previous year. Google Search sales increased by 11%, with YouTube ads up 12%.
Additionally, Alphabet is an exciting option for anyone investing in AI before 2024. The tech giant will launch a highly anticipated large language model it calls Gemini, which is expected to be competitive with OpenAI's top-shelf AI engine, GPT-4. The model could boost multiple areas of Alphabet's business and see it gain a powerful position in the industry.
Moreover, Alphabet looks like a bargain heading into the new year. The tables above show the company's price-to-free-cash-flow and price-to-sales ratios have decreased significantly over the last three years.
This means Alphabet is trading at one of its cheapest levels in years. Alongside an attractive forward price-to-earnings ratio (P/E) of 22, Alphabet is an exciting growth stock for 2024.
This steady growth stock is up in value by roughly 238% in the last five years, with annual revenue climbing 106%.
The company's growth is due primarily to operating business segments with considerable market share in multiple growing industries. With megapopular brands such as Windows, Office, Xbox, Azure, and LinkedIn, Microsoft has what it takes to continue expanding its businesses in 2024 and beyond.
Grand View Research projects the $484 billion cloud market will generate a compound annual growth rate of 14% until at least 2030. Meanwhile, Microsoft's cloud platform Azure holds a 22% market share in the industry, second only to Amazon Web Services.
Microsoft's intelligent cloud segment has been the fastest-growing part of its business in recent years. In Q1 of fiscal 2024, the segment's revenue increased 19% year over year, while operating income rose 31%. Microsoft is already significantly benefiting from the market's growth and plans to expand further in the industry with heavy investment in AI.
Demand for AI cloud services has skyrocketed this year. Microsoft responded by increasing its investment in ChatGPT developer OpenAI, achieving a 49% stake in the start-up. The company is integrating OpenAI's tech across its product lineup as it strives to become the go-to for anyone seeking ways to boost productivity through AI.
In addition to a long growth history, Microsoft is one of the cheapest stocks in AI and the cloud market. As the charts above show, the company has a lower forward P/E and price-to-free cash-flow ratio than some of the biggest names in these industries, indicating its stock offers the most value. And with free cash flow of $63 billion as of Sept. 30, Microsoft is well equipped to continue investing in and expanding its many businesses in 2024.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.