Many tech stocks took a hit last year on news about elevated inflation, high interest rates, and the possibility of a recession. These events combined to wreck investors' confidence in the sector. But technology stocks have made a solid comeback in 2023. The newly found confidence in tech stocks explains why the Nasdaq Composite index is up nearly 30% so far this year, while the S&P 500 index has appreciated nearly 15%.
What's even better is that the rally in tech stocks shows potential to continue thanks to ongoing favorable economic indicators. For instance, analysts are predicting that the Federal Reserve might start cutting interest rates in 2024, a move that will help lower borrowing costs for tech companies and allow them to boost margins. Additionally, the U.S. economy has been resilient this year, and Wall Street now expects it to grow at a stronger pace than anticipated earlier.
These indicators (and others) point to now being a good time to buy shares of Nvidia (NVDA -3.00%) and Apple (AAPL -2.41%), two stocks that are capable of going parabolic in the right financial circumstances. A parabolic move happens when the price of a stock starts moving up at a really fast pace within a short period, resembling the right side of a parabolic curve on a chart.
Let's look at the reasons why these two tech giants could take off.
1. Nvidia
Nvidia's 218% stock price jump since Jan. 1, 2023, suggests that the stock has already made a parabolic move. But don't be surprised to see it go on another mind-boggling run once it releases its fiscal 2024 second-quarter results (for the quarter ended July 30) on Aug. 23.
The semiconductor specialist guided for $11 billion in fiscal Q2 revenue when it released its Q1 results three months ago. That triggered a big surge in its stock price as the guidance indicates that its revenue could rise 64% year over year. Analysts, however, expect Nvidia to report a bigger revenue jump of 66% to $11.1 billion. They are estimating $2.06 per share in adjusted earnings from the company as compared to the reading of $0.51 per share in the year-ago period.
There is a good chance that Nvidia will be able to meet, or even exceed, the ambitious consensus estimates given the huge demand and high prices of its data center graphics cards. For example, the company's flagship data center GPU (graphics processing unit) -- the H100 -- is priced at $40,000. These cards are reportedly being bought hand over fist by Microsoft and OpenAI. It is worth noting that OpenAI deployed tens of thousands of Nvidia's prior-generation A100 GPUs, which were priced at $10,000 apiece.
And now, it appears that Nvidia's next-generation data center GPUs, code-named Blackwell, could carry a 40% higher price than the current H100 processors when they go on sale next year, according to Timothy Arcuri of UBS. With GPUs accounting for 60% to 70% share of the AI server market -- a space that's expected to grow 38% in 2023 and sustain a 22% annual growth rate through 2026 -- Nvidia is on track to enjoy a nice mix of volume and average selling price (ASP) growth given that it controls 95% of the data center GPU market, according to CFRA Research.
All this explains why Nvidia's annual revenue from selling AI chips is expected to jump to a massive $300 billion in 2027 as compared to this year's estimate of $25 billion to $30 billion, according to investment banking firm Mizuho Securities. And such a massive acceleration in Nvidia's revenue is likely to be rewarded with another parabolic move on the stock market, suggesting that investors would do well to hold on to this AI stock despite its eye-popping gains so far this year.
2. Apple
Apple stock delivered respectable gains of 36% so far in 2023, but the stock has been heading lower since releasing its fiscal 2023 Q3 results (for the quarter ended July 1) on Aug. 3. The stock is down 8% since then, which isn't surprising considering the company's revenue has declined for three quarters in a row, and the trend is expected to continue in the current quarter as well.
More specifically, Apple anticipates a 1.4% year-over-year decline in revenue in fiscal 2023's Q4, similar to the drop it witnessed last quarter. However, there are pointers that Apple could end up in a much better position. For instance, Apple component supplier Qorvo guided for a sequential revenue jump of more than 50% in the current quarter.
Qorvo got 37% of its revenue from selling components to Apple in the previous fiscal year. So the massive quarter-over-quarter growth that Qorvo projected indicates that its customer may have placed a large order for chips. That doesn't seem surprising as Apple reportedly began the production of its next-generation iPhones before it reveals them next month.
With a massive 250 million users reportedly using iPhones that are at least four years old, as per Wedbush Securities, there is a good chance that the new iPhone generation could sell more than the existing iPhone 14 lineup. Wedbush estimates that Apple could sell 240 million units of its new iPhones in the coming year, and the company is expected to hike the price of its smartphones by up to $200.
Apple has sold 222 million iPhones in the past four quarters, and the average selling price of each iPhone reportedly stood at $988 in March this year, according to Consumer Intelligence Research Partners. So there is a solid chance that Apple's revenue could increase significantly in the coming year thanks to a combination of stronger pricing and higher volumes.
Throw in the launch of the Apple Vision Pro mixed-reality headset next year, and the tech giant could benefit from another lucrative market that's currently in its early phases of growth. As such, Apple's top line could get a nice shot in the arm in the new fiscal year and help the company exceed the 6.3% revenue growth to $407 billion that analysts are currently expecting from it in fiscal 2024. So, taking advantage of Apple's latest pullback and buying the stock now could be a good idea since a solid performance in the year's second half could help it go parabolic.
