2 Stocks to Buy Now to Play a Top Investing Trend in 2024

Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar. 2023 is winding down. As we take a look back at the year in investing, one of the stories that stands out most is the excitement around artificial intelligence stocks. The poster child for AI stocks in 2023 was Nvidia NVDA: The chipmaker’s stock soared more than 200% this year.

In fact, AI enthusiasm led to outsize gains for what became known as the “Magnificent Seven” stocks. The “Mag Seven” includes Nvidia along with Apple AAPL, Alphabet GOOGL, Microsoft MSFT, Amazon AMZN, Meta Platforms META, and Tesla TSLA. Together, these stocks drove a significant part of the market’s gain for the year. Perhaps not surprisingly, most of the Mag Seven stocks look either fairly valued or overvalued today based on Morningstar’s metrics.

Now, artificial intelligence isn’t just a one-year investing trend. Morningstar expects 2024 to be a year of phenomenal change in the space with competitors jockeying for position and nearly every company looking for its own opportunities for automation or growth.

So, where are the AI opportunities for investors heading into the new year? Morningstar U.S. market strategist Dave Sekera thinks some of the most attractively priced opportunities today are in what he calls second-derivative plays on AI. Today, we’re looking at two of his favorites.

2 Stocks to Buy Now to Play a Top Investing Trend in 2024

1. Cognizant Technology Solutions CTSH
2. Snowflake SNOW

The first undervalued derivative play on AI for 2024 is Cognizant Technology Solutions. This IT consulting firm offers technical capabilities in artificial intelligence services to companies that don’t have the expertise or the financial ability to build and maintain their own AI platforms. We assign the stock a narrow economic moat rating, which suggests that the company should be able to fend off competitors for 10 years or more.

The second undervalued derivative play on AI for the new year is Snowflake. Snowflake is a data management provider that hosts enterprise data on which AI models are run. We don’t think that Snowflake has carved out an economic moat just yet, given its limited public history and lack of profitability today. That being said, we think the company benefits from switching costs and a network effect, and we expect customer stickiness to increase over time. We think shares are worth $231.

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Morningstar U.S. market strategist Dave Sekera and analyst Julie Bhusal Sharma provided the research behind this segment.

Watch “3 of the Best Stocks for Value Investors to Buy Now” for more from Susan Dziubinski.