Summary The Nasdaq Composite outperformed the S&P 500 in 2024, rising 28.6% versus the S&P 500's 23.3%. Five stocks within the Nasdaq Composite are expected to outperform the broader index in 2025: Meta Platforms, Alphabet, ASML, PayPal, and MercadoLibre. These companies have significant potential for growth due to their investments in artificial intelligence, e-commerce, and fintech.
AI Plays: Meta, Alphabet, and ASML
Artificial intelligence (AI) was a major investment theme in 2023 and 2024, and its importance is expected to continue in 2025. Three companies that are well-positioned to benefit from the growth of AI are Meta Platforms, Alphabet, and ASML.
Meta and Alphabet are two of the largest technology companies in the world, and they have significant investments in AI. Their flagship properties, Facebook and Google, make most of their money on advertising, and developing leading AI models is one way to achieve that goal. Both companies have developed generative AI platforms, such as Google Gemini and Meta's Llama, which are near the top of the list of best-performing models.
Despite their dominant market position in advertising and solid progress in the AI arms race, these two trade for attractive price tags. The forward PE ratio for Meta is 23 times earnings, while Alphabet has a forward PE ratio of 21.2 times earnings. This makes both stocks significantly cheaper than the Nasdaq 100 index, which has a forward PE ratio of 27.1.
ASML, on the other hand, is an entirely different AI investment. The company makes machines that are vital in microchip production, including extreme ultraviolet (EUV) lithography machines. ASML's technology gives it a monopoly in the space, and its management has stated that the long-term investment growth picture remains intact despite recent setbacks.
The stock has plummeted due to reduced 2025 guidance, but ASML's management is confident in the company's future prospects. With its monopoly and strong growth projection for multiple years, ASML seems like a no-brainer investment. The stock is down around 35% from its all-time high, presenting a massive investment opportunity.
Value Investments: PayPal and MercadoLibre
While the previous three stocks are geared towards growth investments, PayPal and MercadoLibre both provide significant value opportunities.
PayPal's recovery under relatively new CEO Alex Chriss has been strong. The company is starting to see some of its changes pay off, and free cash flow has risen dramatically since he took over in September 2023. This allows PayPal to repurchase shares, which they have done in a dramatic fashion. PayPal's share count has fallen 7% in the short time Chriss has been at the helm.
As a result, PayPal should see solid earnings growth, which should translate into a market-beating stock. With its attractive valuation and strong management team, PayPal is an excellent choice for value investors.
MercadoLibre, on the other hand, is the e-commerce giant in Latin America. The company also has a fintech division similar to PayPal's client base. Due to some bad debt in its credit card division, MercadoLibre's profits took a hit, which the market didn't appreciate. This caused the stock to plummet, and recently it was 20% down from its all-time highs.
However, this weakness is only expected to last for a short amount of time, as Wall Street analysts project 38% earnings per share (EPS) growth in 2025. For a stock that's trading at 38 times forward earnings, that level of growth seems like a steal. With its dominant position in Latin America and strong growth prospects, MercadoLibre is an excellent choice for value investors.
Conclusion
The five stocks mentioned above have significant potential for growth due to their investments in artificial intelligence, e-commerce, and fintech. While they may not be the most well-known companies on the Nasdaq Composite, they are certainly worth considering as investments in 2025.
Meta Platforms, Alphabet, ASML, PayPal, and MercadoLibre all have unique strengths and advantages that make them attractive to investors. With their strong management teams, solid financials, and significant growth potential, these stocks should be on the radar of any investor looking for long-term gains.
Whether you're a seasoned investor or just starting out, it's essential to consider these five companies as part of your portfolio in 2025. Their growth prospects are too significant to ignore, and their value proposition is too compelling to pass up.
In conclusion, investing in the right stocks can make all the difference between achieving financial success and falling behind. The five stocks mentioned above have the potential to deliver significant returns in 2025, making them an excellent choice for any investor looking to grow their portfolio.
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