History Says the Nasdaq Will Outperform in 2024: 1 Stock-Split Stock to Buy Now

The past couple of years have been dramatic for growth stock investors. The Nasdaq Composite index, which is chock-full of growth stocks, tanked by 33% in 2022. The growth-stock-laden index recovered in a big way last year with a 43% gain.

Last year was the 11th time since 1971 that the Nasdaq Composite index returned to positive gains following a negative year. All recoveries have lasted at least two years. The second year of Nasdaq Composite index recoveries are generally less dramatic than the first year but are still significant.

During the second year of the past 10 recoveries, the Nasdaq Composite index has gained 21.8% on average. That doesn’t necessarily mean growth stocks in the Nasdaq Composite will have another great year in 2024, but it sure seems likely.

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In recent years, everyday investors have become enamored with stock-split stocks. In theory, stock splits don’t affect a company’s overall market value. They only make it easier for folks with smaller budgets to buy shares.

In practice, investors view stock splits as a sign of confidence from the businesses that announce them. They also remind investors about extended periods of strong performance that pushed the stock high enough to warrant a split in the first place.

Amazon (AMZN -0.36%) is a high-flying stock that split each of its shares into 20 new ones in June 2022. Despite already rising 63% over the past year, a Nasdaq bull market could propel it to new heights in 2024.

Why Amazon stock is a buy right now

Microsoft may have beaten Amazon to the punch by investing early in OpenAI and its hyper-popular generative artificial intelligence (AI) service, ChatGPT. That doesn’t mean Amazon’s behind the ball when it comes to implementing new AI services for the enormous base of customers who subscribe to Amazon Web Services (AWS). Staying ahead of the curve is a big reason AWS is the world’s largest provider of cloud services.

Amazon is working on a pair of relatively low-cost chips for training and inference from large language models (LLM), plus it offers access to top-of-the-line chips from Nvidia. This flexibility inspired Anthropic, a leading LLM maker, to hire AWS as its primary cloud provider last year.

Few organizations want their content to become part of an LLM that their competitors can access. Amazon Bedrock solves this problem by letting clients customize existing LLMs with proprietary data in a secure setting.

Boosting AI functionality helped push AWS sales 13% higher during the first nine months of 2023, and it isn’t the only operating segment pushing the needle forward. Amazon’s e-commerce business is growing fast and will likely continue along its trajectory for a long time.

Amazon reported e-commerce sales that rose 11% during the first nine months of 2023. At $247 billion, there’s still plenty of room to keep growing. The global e-commerce market was valued at $13.5 trillion in 2022 and is projected to grow by 15% annually through 2030, according to Grand View Research.

Businesses ordering goods from other businesses will be responsible for the majority of e-commerce sales and growth in the years ahead. During the pandemic, Amazon doubled the size of its already enormous fulfillment network. With more nodes and connections than any of its competitors, business-oriented sellers in North America will be hard-pressed to find better options.

Amazon’s ad sales are pushing up profits

Amazon is leveraging the popularity of its e-commerce platform with ad sales that are climbing fast. Sellers spent $12.1 billion on ads in the third quarter, 25% more than they spent a year earlier.

High-margin ad sales helped Amazon generate $21.4 billion in free cash flow during the 12 months ended Sep. 30, 2023. This is a sharp improvement from the previous year’s losses, but 33% below the peak reached in 2020.

Amazon shares are richly valued at roughly 95 times trailing free cash flow, about 53 times the free cash flow generated in 2020. Before piling into this stock, it’s important to realize it could fall hard if profits don’t continue along the upward trajectory they’ve been on since 2022.

Cloud customers flocking to AWS and sellers locked into its unmatched e-commerce platform are what Amazon needs to raise its bottom line to new heights. E-commerce and cloud services are such large markets that this business can grow into its lofty valuation. That said, risk-averse investors who can’t stomach any losses want to keep looking for safer stocks to buy.