It was a stellar year for equities that defied considerable geopolitical uncertainty to deliver handsome returns for patient, long-term investors. Most major indices succeeded in digging themselves out of terrible 2022 losses. The S&P 500 closed out 2023 with a robust return of 24%, while the tech-heavy Nasdaq Composite rose 43%, driven by gains in big tech names, and the Dow Jones Industrial Average soared more than 13%, for the same period.
While a significant number of stocks were able to recoup a large portion of their previous year’s losses, the leading performers achieved returns exceeding a chart-topping 300%, setting the stage for an outstanding performance in 2024.
Several names from across sectors within the Morningstar coverage universe emerged at the top, each yielding returns of more than 100% and finishing as the leading performers. Here are three picks.
Nvidia NVDA is a leading developer of graphics processing units (GPUs) that have emerged as key semiconductors used in artificial intelligence (AI). Apart from AI GPUs, the firm also offers a software platform, Cuda, used for AI model development and training.
The stock returned an eye-watering 239% in 2023.
Nvidia is also broadening its data centre networking offerings, which helps in linking GPUs to manage complex tasks. “Parallel processing has emerged as a near-requirement to accelerate AI workloads,” says a Morningstar equity report, adding that, for better or worse, Nvidia’s prospects will be tied to the AI market for a long time to come.
The company boasts a wide economic moat built on intangible assets around its graphics processing units and, increasingly, switching costs around its proprietary software, such as its Cuda platform for AI tools.
Nvidia enjoys “clear leadership in GPUs, hardware and software tools needed to enable the exponentially growing market around artificial intelligence,” says Morningstar equity analyst Brian Colello, who pegs the stock’s fair value at US$480, implying an equity value of over US$1.1 trillion.
The chipmaker’s fortunes will be driven by its prospects in the data centre and AI GPUs. “We anticipate a massive expansion in the AI processor market in the decade ahead, and see room for tremendous revenue growth at Nvidia,” notes Colello, who asserts the company can stay ahead of the growing competition.
The online gaming giant, DraftKings DKNG offers fantasy sports, online sports and casino gambling. The firm ranks among the top three companies, by revenue, in markets it operates.
As more U.S. states legalize online betting, DraftKings has launched its online sports betting in 21 states, reaching 44% of the U.S. population. It also offers iGaming in five states, covering 11% of the U.S. population. Both these services are accessible to approximately 40% of the population in Canada.
In 2023, the company’s stock yielded an impressive 219% return.
A leading player in the North American sports betting and iGaming market, DraftKings, along with FanDuel and MGM, holds a combined 70%-80% revenue share. “While sports betting and iGaming are currently legal in nearly 40 and seven states, respectively, we expect another handful to be added to each market the next few years, as governments look to capitalize on tax revenue generated from the growing activity,” says a Morningstar equity report.
DraftKings is well positioned to profit from the fast-growing North American sports betting and iGaming market, projected to reach US$40 billion-US$50 billion in revenue in the early part of the next decade, up from US$13 billion in 2022.
“During the next 10 years, we estimate DraftKings' revenue growth will average 18%, aided by additional states legalizing sports betting and iGaming,” says Morningstar equity analyst Dan Wasiolek, who recently raised the stock’s fair value to US$35 from US$32, driven by stronger intermediate-term profitability.
Facebook parent Meta Platforms META is the world’s largest online social network, where users exchange messages and share news, photos, and videos. About 3.8 billion monthly active users engage within its ecosystem comprising the Facebook app, Instagram, Messenger, and WhatsApp.
The tech giant generates 90% of its total revenue from advertising, of which more than 45% comes from the U.S. and Canada and another 20% from Europe. “The growth in users and user engagement, along with the valuable data they generate, makes Meta’s platforms attractive to advertisers,” says a Morningstar equity report.
These valuable assets and the expectation that advertisers will keep moving their spending online are good signs for the company's future growth and cash flow, the report adds.
In 2023, Meta’s nearly 195% surge made it the S&P 500’s second-best performer, partly driven by investor enthusiasm for the potential of AI.
The company is heavily investing in AI. It’s currently testing over 20 generative AI features in search and in ads on Facebook, Instagram, Messenger, and WhatsApp, with plans to roll them out worldwide.
“It is also applying artificial intelligence and virtual and augmented reality technologies to various products, which may increase Meta user engagement even further, helping to further generate attractive revenue growth from advertisers in the future,” says Morningstar equity analyst Ali Mogharabi, who pegs the stock’s fair value at US$322, and projects 10% average annual growth over the next five years.
