This year has kept stock market investors on tenterhooks. On the one hand, the benchmark S&P 500 index reached a record high of 6,001.35 on Nov. 11, implying a year-to-date gain of 25.8%. However, for most of 2024, investors and analysts have been bogged down by challenges, including high inflation, high private debt levels, supply chain constraints, and geopolitical tensions.
In this environment, some investors may be staying away from speculative investments and buying stakes in fundamentally strong stocks riding robust secular tailwinds. Artificial intelligence (AI) is undoubtedly one solid trend that has become a hot investment theme on Wall Street.
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Against this backdrop, here's why it is prudent for investors to watch out for these three AI-powered stocks in December 2024.
Meta Platforms
The first stock worth considering now is the $1.48 trillion market-cap, AI-driven social media giant Meta Platforms(NASDAQ: META). Meta's AI-powered recommendation system is pivotal in increasing user engagement on its family of apps. The company's AI-powered feed and video recommendations have helped increase time spent on Facebook and Instagram by 8% and 6%, respectively, in 2024. Higher user engagement on social media platforms results in a better return on investment for advertisers.
Plus, over 1 million advertisers are also using the company's generative AI tools to create advertisements. Meta estimates that the use of image generation has helped boost ad conversions by 7%. Unsurprisingly, Meta reported a 7% increase in the number of ad impressions and an 11% rise in average price per advertisement across its services in the third quarter of 2024.
Besides strengthening its core advertising business, Meta's AI initiatives are also helping create new revenue streams. Meta's AI-powered assistant, Meta AI, is seeing solid traction and has already reached 500 million monthly active users. With 3.2 billion or 40% of the global population using at least one of Meta's applications daily, Meta AI can soon become the most widely used AI assistant globally.
Meta is also investing heavily in AI infrastructure to position its open-source Llama AI model as the industry standard. Llama downloads reached 350 million by the end of August 2024, almost 10 times higher than that by the end of August 2023. While Llama 3 models continue to see strong momentum, Meta is focusing on training Llama 4 models on clusters comprising more than 100,000 of Nvidia's H100 GPUs.
Meta's financials also reflect the company's strong business momentum. Revenue and net income are growing at a double-digit rate. The company's balance sheet is also very healthy, with $70.9 billion in cash and marketable securities compared to just $28.8 billion in debt.
Adding up all the above factors, Meta seems to be an exceptional AI pick for December 2024.
Microsoft
Technology behemoth Microsoft (NASDAQ: MSFT) is the second stock to watch in December 2024. Although the company surpassed consensus revenue and earnings estimates in its first-quarter fiscal 2025 results (ended Sept. 30), the stock has taken a beating on a weaker-than-expected year-over-year revenue growth outlook for the Azure cloud computing business. Despite these concerns, there is much to like about Microsoft.
Microsoft's $13 billion partnership with OpenAI has been pivotal in strengthening the company's core offerings and opening new revenue streams. Microsoft's AI business is projected to cross a $10 billion annual revenue run rate in the second quarter. This milestone will make AI the fastest-growing business in the company's history.
Azure and other cloud services also grew revenue by 33% year over year in the first quarter, while AI services accounted for roughly 12 percentage points of this growth. The company also focuses on generating high-quality AI revenue streams from selling the entire AI package (hardware, software, models, frameworks) to enterprise customers instead of just GPUs to speculative AI start-ups.
The company is building an end-to-end app platform with Azure AI to help enterprises build their own Copilots and agents. Hence, with the demand for Azure AI services higher than the available capacity, Microsoft expects its planned data center capacity expansions to accelerate Azure's AI-powered growth in the second half of fiscal 2025.
Another major growth catalyst for Microsoft is the cloud-based Microsoft 365 productivity suite, which is also seeing solid growth in average revenue per user (ARPU) partly due to the robust adoption of AI-powered Copilot services. Since nearly 70% of Fortune 500 companies are now using Microsoft 365 Copilot, this AI service has further increased the stickiness of Microsoft's offerings among large enterprises.
Hence, considering Microsoft's success in leveraging its AI investments with strong execution in core businesses and healthy financials, this diversified company is well positioned to prove a smart buy in the coming months.
Micron Technology
The third AI-powered stock to watch in December 2024 is memory player Micron Technology (NASDAQ: MU). The company's high-performance memory offerings are used extensively by data centers to power complex AI and high-performance computing applications.
Besides adding new servers, data centers are also replacing multiple older-generation servers with next-generation traditional and AI servers to boost power efficiency, space management, and performance. Plus, DRAM and NAND content in the newer servers is also increasing. This has helped boost demand for Micron's memory offerings.
Micron is also working to capitalize on this opportunity by transitioning from older nodes to the more advanced one-beta DRAM node technology and G8/G9 NAND process technology -- moves to help boost the production capacity of its high-margin memory offerings.
HBM (high-bandwidth memory, a type of DRAM) has also emerged as a major growth catalyst for the company. The HBM market is expected to grow from $4 billion in 2023 to $25 billion in 2025, and Micron is targeting a 20% to 25% share of this market by 2025. Micron's HBM chips are already sold out until 2025, with pricing concluded for 2024 and 2025. This resulted in high revenue visibility and predictability for Micron's HBM business.
Considering these tailwinds, Micron stock seems poised to surge higher in 2025.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
