An Industry in the Midst of a Frenzy: Which Firms Will Drive 2024’s Generative AI Boom?

The generative AI rally has been so impressive that some analysts believe it’s responsible for all gains made by the S&P 500 in 2023. But amid the furor, are there still buying opportunities available for investors?

At the time of writing, the S&P 500 has grown almost 20% in 2023 alone, helping to set up a market recovery that’s nearly recaptured the sweeping losses suffered due to a cocktail of economic headwinds throughout the year prior.

According to Societe Generale SA strategist Manish Kabra, this impressive market recovery wouldn’t have been possible without the emergence of the generative AI boom. Kabra suggests that US stocks would be down for the year without interest in GenAI stocks.

It’s for this reason that many investors fear that they may have missed the boat on surging generative AI stocks. Nvidia stands as a key example of the frenzy’s power, growing more than 200% since January 1st alone and joining the exclusive $1 trillion market capitalization club.

Recent market slowdowns may also lead to the belief that the generative AI boom has peaked, with a 10% decline in the S&P 500 occurring between August and October. But what does this mean for an industry that’s seen so much growth throughout the year?

The Economics of Progress

After a strong start to 2023, warning signs began to sweep across the generative AI landscape. As markets signaled a cooling of investor appetite, leading platforms like ChatGPT experienced three consecutive months of falling traffic.

Was this a sign of a bubble? The likelihood is that rising interest rates in the US imposed by the Federal Reserve to combat inflation pushed stock averages down throughout markets. \

This saw generative AI stocks take a dip while falling ChatGPT traffic was attributed to school summer holidays for students.

While economic headwinds will always have a say in markets that aren’t immune to fear, the staying power of generative AI appears to be evident in the vast rush for adoption among businesses throughout many different sectors.

With more companies hurrying to incorporate generative AI into their operating models and the sustained growth of the firms providing services, software, and hardware to support AI models, there’s plenty of room for more GenAI growth throughout 2024 and beyond.

“AI is set to become the new space race, with every country looking to create its own center of excellence for driving significant advances in research and science and improving GDP,” explains Ian Buck, Vice President of Hyperscale and HPC at Nvidia.

“Government-funded generative AI centers of excellence will boost countries’ economic growth by creating new jobs and building stronger university programs to create the next generation of scientists, researchers, and engineers.”

With the promise of more growth opportunities across national economies, it’s clear that GenAI will be a frontier that many different players are keen to make the most of. But which firms will pioneer generative AI growth into the new year? According to market experts, there are four key companies that are set to continue building their presence into the future:

1. Snowflake (NYSE: SNOW)

Snowflake’s stock has been rated four stars out of five by Morningstar, and with good reason, too.

"In just over ten years, Snowflake has culminated into a force that is far from melting, in our view,” notes Julie Bhusal Sharma, equity analyst for Morningstar. “We think Snowflake has a massive runway for future growth and should emerge as a data powerhouse in the years ahead.”

"Even more valuable, in our view, is that Snowflake's platform is interoperable on numerous public clouds. This allows Snowflake workloads to be performant for its customers without significant effort to convert data lake and warehouse architectures to work on different public clouds,” Sharma added.

Crucially, Snowflake raised its full-year product revenue guidance to $2.65 billion, which would mean a 37% increase over the year prior. This has been revised upwards in comparison to its 34% initial forecast due to the company’s ‘strong execution in a broadly stabilizing macro environment.’

2. Crowdstrike (NASDAQ: CRWD)

Crowdstrike’s stock has more than doubled in 2023 thanks to the generative AI boom, and analysts expect the good times to continue rolling for AI-focused cybersecurity firms into the new year.

Because of the automation that generative AI can bring to the cybersecurity market, it’s clear that the industry will benefit significantly from the emergence of intelligent technology.

Bloomberg Intelligence anticipates generative AI cybersecurity spending could climb from $9 million last year to nearly $14 billion by 2032, representing a CAGR of 109% over the coming decade.

Crowdstrike is set to be a key beneficiary of this boom, and its 2023 performance could be the start of sustained growth throughout the decade.

3. Nvidia (NASDAQ: NVDA)

No list would be fully complete without the star of the generative AI boom so far, Nvidia entering the fray. The extreme growth of the stock may lead some investors to believe that they’re late to the party, but the reality is that the semiconductor industry will be a major player in supporting the mainstream adoption of artificial intelligence and Nvidia currently stands as an undisputed market leader in the field.

“With an upside of 45% is a leading developer of graphics processors,” states Maxim Manturov, head of investment research at Freedom Finance Europe.

“Nvidia offers not only GPUs for artificial intelligence but also the Cuda software platform used to develop and train artificial intelligence models. Nvidia is also expanding its data center networking solutions to help connect GPUs to handle complex workloads.”

4. Palantir Technologies (NYSE: PLTR)

Another stock that’s surged in 2023 is Palantir, which launched its major Artificial Intelligence Platform (AIP) in April. The platform integrates large language model capabilities within its core machine learning technology to improve the quality of its services. Having attracted almost 300 clients, AIP has been a major draw for the firm.

Notably, Palantir earned nearly 55% of its total revenue from government business in Q3 2023, and the trust-based nature of government clients means that an aforementioned ‘generative AI space race’ could play directly into the firm’s hands.

With an uncertain geopolitical future ahead, Palantir will likely stay in heavy demand long into the future, thanks to its integration of AI services into its platform.

How Big Will Generative AI Become?

It’s easy to look at generative AI firms on Wall Street doubling or even tripling their valuations within a year and conclude that we’re in a bubble. Likewise, the shrinking market conditions through much of Q3 2023 indicate that GenAI stocks aren’t immune to economic headwinds in the US and beyond.

However, it’s important to comprehend the sheer transformative potential of generative AI and how intelligent automation can aid virtually every industry on Earth.

Yes, the widespread implementation of generative AI won’t be easy, and scalability will be expensive, but the benefits in terms of efficiency and accuracy, the GenAI boom will carry a large enough impact to continue its growth over the coming years.

Whether the firms that are driving the current GenAI frenzy will meet new competitors in the future remains to be seen, but it’s clear that the world’s most innovative firms have further to run in current market conditions.