The Nasdaq Composite (NASDAQINDEX: ^IXIC) has had a monster two-year run. After gaining 43% in 2023, the index put up around 30% gains in 2024, marking one of the best-performing periods in its history.
Contrary to what your instincts may tell you, this does not mean the index is ripe for a correction in 2025. In fact, the opposite may occur. Going back to 1972, every year with 30% or higher returns is followed by an average return of 19%, likely due to the momentum factor. While it doesn’t guarantee good returns for your portfolio in 2025, it looks more likely than not that the good times will roll, given the historical data.
History indicates that the Nasdaq may soar again in 2025. Here is one artificial intelligence (AI) stock to buy before it does.
Nasdaq returns over the last two years have been propelled by the AI boom. A lot of stocks associated with AI, such as Nvidia, are now trading at nosebleed earnings multiples. However, one remains undervalued and is hiding in plain sight for investors to buy in 2025: Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
The owner of Google, YouTube, and other technology assets has been bogged down by a narrative that it is losing market share to new AI tools such as ChatGPT. It is true that ChatGPT gained a lot of popularity, but it hasn’t come at the expense of Google Search’s profitability. According to third-party estimates, Google Search still has an approximate 90% market share among search engines worldwide, which hasn’t budged much in the last few years.
Google is ingrained in the modern digital operating systems and has billions of daily users. Now, the company has an opportunity to supercharge the business with new AI products, such as its new search result summaries, the Gemini chatbot, and Google Lens (which allows you to search what you see). Google wants to allow you to search about anything in the world around you and get a thoughtful, AI-powered response behind it. This will open up more opportunities for search queries in day-to-day life, which will lead to more advertising revenue for the business.
Last quarter, Google Search revenue grew 12% year over year to $49 billion.
Alphabet has many levers it can pull to keep revenue and earnings growing. There’s the aforementioned AI boom that will help grow Google Search. There’s YouTube, which keeps gaining market share in video streaming and grew revenue by 12% last quarter. Google Cloud is helping Alphabet sell its AI breakthroughs to third parties and growing revenue by an astounding 35% year over year. At this pace, the segment will hit $100 billion in annual revenue in a few years.
