The second year of Wall Street’s bull market rally didn’t disappoint. Although all three major stock indexes climbed to numerous record-closing highs throughout 2024, it’s growth stocks that continued to lead the charge.
The Nasdaq-100, which is comprised of 100 of the largest non-financial public companies listed on the Nasdaq stock exchange, gained 25% last year and 92%, in aggregate, over the two-year period between the start of 2023 and end of 2024. The rise of artificial intelligence (AI) and excitement surrounding stock splits have investors flocking to many of the Nasdaq-100’s components.
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But as we push forward into 2025, the outlook for the companies that comprise this high-flying index notably varies. While two Nasdaq-100 members stand out for all the right reasons and have the appearance of no-brainer buys in the new year, another recent addition is rife with red flags and worth avoiding.
The first Nasdaq-100 stock that makes for a no-brainer buy in 2025: Meta Platforms
Despite its stock soaring over the last two years, social media colossus Meta Platforms (META 0.84%) is the first member of the Nasdaq-100 that can be purchased with confidence in the new year.
Though all eyes are seemingly on Meta’s incorporation of AI and its positioning within the metaverse, it’s important not to overlook the company’s foundational social media operations that generate the lion’s share of its revenue and cash flow.
During the September-ended quarter, the company’s family of apps, which includes Facebook, Instagram, WhatsApp, Facebook Messenger, and Threads, attracted 3.29 billion daily active users. There isn’t a social media company that comes particularly close to luring as many users as Meta, which is an important distinction that affords it exceptional pricing power when dealing with advertisers.
Something else to keep in mind is that ad-driven businesses like Meta are ideally positioned to take advantage of long-winded periods of economic growth. Even though recessions are normal and inevitable aspects of the economic cycle, they’re historically short-lived. A simple buy-and-hold approach for a leading advertiser like Meta has worked wonders for investors.
Being an absolute cash cow is another reason investors can trust Meta in the new year. The company closed out the third quarter with $70.9 billion in cash, cash equivalents, and marketable securities, and it’s generating an average of more than $21 billion in net cash from operations per quarter. Having this much cash at the ready allows Meta to repurchase its stock, pay a dividend, and reinvest in high-growth initiatives.
For instance, Meta Platforms is spending approximately $10.5 billion to purchase 350,000 graphics processing units from Nvidia for its AI-accelerated data center. We’re already witnessing evidence that relying on AI is helping to improve Meta’s ad business.
The final piece of the puzzle is Meta’s still-attractive valuation. Shares of the company are valued at 24 times forecast earnings per share (EPS) for 2025 and a multiple of 21 times EPS for 2026. This is a reasonable multiple to pay for sustained annual EPS growth in the mid-teens.
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The second Nasdaq-100 stock that’s a no-brainer buy in 2025: Warner Bros. Discovery
A second Nasdaq-100 stock that possesses the tools and intangibles of a great buy in 2025 is beaten-down media company Warner Bros. Discovery (WBD -3.58%). Though Warner Bros. stock is down a modest 8% over the trailing year, shares have plummeted by 62% over a three-year stretch.
The challenge for legacy media providers is that the content landscape is evolving. Consumers are cancelling their traditional cable service and shifting to streaming providers. This is impacting content acquisition/creation costs, as well as reducing the addressable advertising market for legacy media networks. But while the ride has been undeniably bumpy for Warner Bros. Discovery, there is light at the end of the proverbial tunnel.
Arguably the most exciting catalyst is the company’s December-announced reorganization into two separate business units: streaming and studios and global linear networks. Whereas the latter has been weighed down by debt and cord-cutting, the company’s streaming operations are picking up steam. This restructuring may signal an intent to merge with or acquire other streaming content platforms and, at the very least, should help unlock shareholder value.
Warner Bros. Discovery closed out September with 110.5 million direct-to-consumer subscribers, which is up 14.6 million from the prior-year period. More importantly, sales are climbing as a result of higher subscription price points and a successful ongoing push into international markets. Pricing power is key to generating recurring profits from streaming.
Warner Bros. management team hasn’t been afraid to partner its streaming services to expand its audience, either. In mid-September, it and Charter Communications announced a partnership that brings Max and Discovery+ content to Charter’s Spectrum TV Select packages.
Similar to Meta, Warner Bros. Discovery is a cash cow. Although its bottom-line results have been disappointing following the merger of Warner Bros. and Discovery in April 2022, the company has generated $2.66 billion in net cash from its operating activities through the first nine months of 2024. This cash allows Warner Bros. to chip away at its debt, as well as invest in its streaming future.
At a 32% discount to book value, Warner Bros. Discovery stock looks like a no-brainer buy.
The Nasdaq-100 stock that’s worth avoiding in 2025: MicroStrategy
However, not every Nasdaq-100 stock is worth buying in the new year. The newest addition to this skyrocketing index, MicroStrategy (MSTR -1.14%), is the stock to keep your distance from in 2025.
Though MicroStrategy’s enterprise software segment has been its core revenue driver for decades, the more than 2,200% gain in the company’s stock since the start of 2023 has everything to do with its correlation to the world’s largest cryptocurrency, Bitcoin (BTC -0.37%).
MicroStrategy is the first publicly traded company to declare itself a “Bitcoin Treasury Company.” Effectively, CEO Michael Saylor wants to acquire as much of this digital currency as possible. As of Jan. 6, 2025, MicroStrategy held 447,470 Bitcoins, which equates to 2.13% of all Bitcoin that will ever be mined.
Unfortunately, Saylor’s plan to hoard Bitcoin has a number of blatant red flags.
To begin with, Saylor has been funding MicroStrategy’s Bitcoin purchases through a combination of convertible-debt offerings and ongoing share issuances. In late December, a filing from the company noted its intention to seek an increase to its outstanding share count from 330 million to 10.33 billion! Such rampant and reckless dilution could easily come back to haunt the company and its shareholders.
To build on this point, even though MicroStrategy’s annual debt-servicing costs amount to a little more than $35 million, the company’s enterprise analytics software segment isn’t generating enough net cash from operations to cover these interest expenses.
To make matters worse, MicroStrategy’s Bitcoin portfolio is being valued at an unexplained premium. With Bitcoin valued at $94,812 per token, as of this writing on Jan. 12, the company’s 447,470 Bitcoins are worth about $42.4 billion. However, MicroStrategy closed out the previous week with a market cap of $80.6 billion.
Generously placing a $1 billion valuation on its struggling software segment, investors are pricing MicroStrategy’s Bitcoin at an 88% premium to its net asset value. In other words, investors are paying $178,000 for MicroStrategy’s Bitcoins when they could just purchase it on a crypto exchange for $94,812 per token. This premium is unsustainable, which is makes it likely that MicroStrategy stock will collapse at some point in 2025.
