Early Santa Claus Rally on Wall Street Opens Door to Fresh Generative AI Investing Opportunities

Just when it looked as though the generative AI boom couldn’t build any further momentum, a positive Thanksgiving for Wall Street has built hopes for a prosperous end to 2023. Will the Christmas countdown bring festive cheer to GenAI investors?

The Dow Jones Industrial Average climbed 1.3%, while the S&P 500 index gained 1% and the Nasdaq Composite crept up 0.9% on Black Friday’s shortened trading schedule.

These positive market movements have underlined the wave of bullish sentiment arriving on Wall Street towards the end of 2023.

Crucially, this recent market action represents the beginning of the Santa Claus Rally throughout the US markets, which has consistently manifested market growth throughout the S&P 500 and beyond.

To illustrate this point, the S&P 500 has risen during the period between Thanksgiving and New Year’s Eve 70% of the time since 1950, and has an average gain of around 1.7%.

Given that the S&P 500 has been exceptionally buoyant heading into the Santa Claus Rally, the potential upside of this year’s festive season could see impressive gains as 2023 draws to a close. In terms of where the best price action can be found, it’s no surprise that generative AI appears poised to take center stage yet again.

Rallying on the AI Boom

Although many Wall Street analysts are skeptical about the underlying trends that drive the Santa Claus Rally, there’s little doubting the power of generative AI and its captivating influence over the US stock market.

As more good news flowed into markets such as Q3 US GDP accelerating to 4.9% off the back of cooling inflation data, hopes for the 2023 Santa Claus Rally have been particularly high.

"The Santa Claus rally has come early this year for three reasons. One of those is inflation coming in under expectations," explained Saira Malik, Nuveen CIO in a recent Bloomberg interview.

"Also, the Fed is signaling the end of the rate-hike cycle – and finally, the economy is showing some signs of cooling, but not enough to take us into a recession," Malik added.

Another vital reason behind the positive Santa Claus Rally outlook is generative AI, which once again showed its transformative impact on Wall Street as Nvidia announced more impressive third-quarter earnings.

With revenue soaring 206% year-over-year towards a record $18.12 billion thanks to enhanced data center usage and the sale of its A100 GPU, the chip used to train the OpenAI’s ChatGPT program, it’s clear that GenAI’s bite is as big as its bark.

Finding Value in AI

Although generative AI stocks have built plenty of momentum throughout the year, there appears to still be room for further growth for investors who may be considering adding GenAI stocks to their portfolios.

With this in mind, let’s take a look at three generative AI stocks that may be ready for a Santa Claus Rally of their own:

1. Nvidia (NASDAQ: NVDA)

Nvidia’s better-than-expected Q3 2023 results have shown that the stock isn’t done yet despite its significant market growth throughout the year thanks to the generative AI boom.

The semiconductor firm’s non-GAAP earnings of $4.02 per share outpaced the Zacks Consensus Estimate by 19.6%. The third-quarter revenues of $18.12 billion reported represent a 34% sequential climb and underline the momentum that the stock has generated in recent months.

“Nvidia (NVDA) with an upside of 45% is a leading developer of graphics processors. Traditionally, GPUs have been used to enhance the user experience on computing platforms, particularly in PC gaming applications,” notes Maxim Manturov, head of investment research at Freedom Finance Europe.

2. Microsoft (NASDAQ: MSFT)

Microsoft has a long and positive history when it comes to embracing a Santa Claus Rally. The company’s Xbox products and gaming credentials ensure that the stock is a strong performer among consumers, but this year’s catalyst may come in the form of a tumultuous Q4 for OpenAI, a generative AI firm that Microsoft has built a close relationship with.

OpenAI is responsible for generative AI sensation ChatGPT, and Microsoft’s involvement in the company appeared to ramp up a notch when the tech giants briefly hired ChatGPT’s exiled CEO, Sam Altman before he was reimposed at the company in the days leading up to Thanksgiving.

"The golden child, Altman, is ultimately really in Microsoft's hands," said Wall Street analyst Dan Ives. "The way they played this was a poker move for the ages from Nadella. The way this played out, you had the little kids playing checkers at the kids table in terms of the OpenAI board, and then the chessmaster came in."

"This is an arms race playing out… and right now they're popping champagne in Redmond, because of the way Nadella played this," Ives claimed.

Microsoft invested $1 billion in OpenAI in 2019 and purchased an exclusive license for the technology powering ChatGPT in 2020. This latest strengthening of ties between the two firms promises to guarantee Microsoft’s key involvement in the future of the emerging generative AI landscape.

3. Crowdstrike (NASDAQ: CRWD)

Amidst the AI furore among tech giants, it can feel as though Crowdstrike is hiding in plain sight. The stock has accelerated more than 100% in 2023 and is likely to play an instrumental role in the future of artificial intelligence security in the future.

Crowdstrike produces AI chatbots that have the potential to bring automation to security operations centers while making the ability for technology to detect potential cybersecurity threats like hacking attempts far quicker.

As the fundamental security concerns surrounding a burgeoning AI landscape become more pertinent, it’s likely that Crowdstrike will become vital in the battle against cybercrime.

Preparing for a Rally

Should we see a stronger Santa Claus Rally in 2023, it’s highly likely that the biggest beneficiaries will be within a GenAI landscape that’s continued to captivate investors throughout the year.

The continued growth of the industry to new heights on Wall Street shows that there’s plenty of room yet for more upside moving into the new year.