One of the biggest surprises of 2023 was the rise of a handful of tech giants that came to be known as the Magnificent 7. Their performance this year carried the Nasdaq 100 index to an all-time high and was responsible for virtually all the gains of the S&P 500.
Yet what was hot this year may turn cold in 2024. In fact, if history is any guide, it almost surely will be the opposite. Trends investors latched onto last year will fall out of favor as the market migrates to the next new thing.
What follows are my 2024 market predictions for two hottest trends that will crash in the coming year and one that will soar no matter what.Â
2024 Market Predictions – Trend Crash No. 1: Artificial IntelligenceÂ
The biggest news story of 2023 was artificial intelligence (AI). ChatGPT’s release was a monumental breakthrough in bringing generative AI to the forefront of investor consciousness. However, it might not be sustainable. It promises to be a great equalizer, but questions persist about whether it can achieve all that’s promised.
Graphics chipmaker Nvidia (NASDAQ:NVDA) is the AI leader because its GPUs were almost purpose-built for the complex computing tasks AI requires. It was the best-performing stock of the Magnificent 7, as shares more than tripled in value this year. But investors shouldn’t expect next year to be the same.
Competition for AI chips is growing. Advanced Micro Devices (NASDAQ:AMD) just unveiled its MI300X chip that offers better performance than Nvidia’s popular H100 chip. Intel (NASDAQ:INTC) is also in the running with its new Gaudi3 chip. Yet Nvidia responded with its H200, which is more powerful but has a hefty price tag. Export controls on computer chips and technology to China are another wildcard. Not even the chipmakers themselves can see the long-term impact.Â
A second concern is the capacity constraints on chip manufacturing. Taiwan Semiconductor Manufacturing (NYSE:TSM) is the foundry the semiconductor stocks turn to produce their AI chips, but it’s hitting a wall on chip-on-wafer-on-substrate (CoWoS) capacity. Although its capacity is increasing by 20% next year, that may not be enough. Chip shortages could be a reality.Â
Third is whether the greater efficiency, lower costs, or whatever yardstick AI promises will ever pan out. AI demand will dry up if the gains fail to materialize to justify the cost. That might not happen next year, but the reckoning is coming. Investors might not see today’s AI winners in the running tomorrow.
Trend Crash No. 2: Electric Vehicles
Electric vehicles (EVs) are the second investing trend that may skid off the road in 2024. Tesla (NASDAQ:TSLA) was a Magnificent seven stock that had a bumpy ride this year but still doubled in value. Next year could be even more jarring.
As with AI, EV competition is becoming more intense just as demand cools. Not only are there more manufacturers globally chasing fewer car buyer dollars, but several manufacturers appear ready to flame out. Lucid (NASDAQ:LCID) and Nikola (NASDAQ:NKLA) may get bought out or fail before gaining traction.
The main problem is price. EVs are just too expensive compared to fossil fuel-powered vehicles. Manufacturers are resorting to price-cutting to make them more affordable, which erodes profit margins. The industry isn’t so mature, and companies aren’t so profitable they can afford that. And the limitations of the current technology don’t make simple price parity a large enough incentive to move buyers to them.
Moreover, the Federal Reserve’s aggressive interest-rate hikes pushed the cost of financing EVs beyond the range of buyers. It’s just too expensive to purchase an EV when an internal combustion engine car costs less, goes further and takes only minutes to refill.
Battery makers are working on extending the travel range and lowering the charge time for EVs, but that’s a future goal. In the meantime, vehicles are piling up on dealer lots. Both Ford (NYSE:F) and GM(NYSE:GM) have also suspended production on certain models due to slack demand.
The market rush into EV stocks this year could readily short-circuit next year even if the long-term trend may be in the industry’s favor.
2024 Market Predictions – Trend Winner: Cybersecurity
Protecting online data wasn’t much of a headline grabber this year, but it’s an inevitable trend that will have staying power for years to come. The Identity Theft Resource Center says there were 2,116 data breaches in the first three quarters of 2023. That makes it the worst year ever for cybercrime. It’s not going to stop, either. It’s why cybersecurity stocks had an impressive year.
CrowdStrike (NASDAQ:CRWD) is one of the leading players as its Falcon platform quickly sifts through trillions of events weekly, looking for threats. Annual recurring revenue (ARR) more than doubled over the past two years. It grew from $1.1 billion in fiscal 2021 to $2.6 billion in fiscal 2023. It also pries more money out of each customer. For every $1.00 a customer initially spent in 2021, CrowdStrike realizes $6.07 in ARR today.
Yet it’s not alone. Palo Alto Networks (NASDAQ:PANW), Sentinel One (NYSE:S), and Snowflake (NASDAQ:SNOW) all had impressive years this year as well. Like death and taxes, cybercrime is going to be with us forever. The industry is expected to grow from $156 billion last year to $425 billion in 2030. That’s a near-14% compounded annual growth rate. It’s not the meteoric rise you see in some industries, but it will be a steady growth business. It will fuel the creation of millionaires who invest in it today.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
