The stock market has continued to perform well, with the NASDAQ leading the way in terms of total returns in recent years. That’s no surprise to many long-term growth investors, who have benefited from this long-standing bull market.

Now, a rotation has begun to become apparent, with some divergence now being seen between large-cap tech stocks in the NASDAQ and other smaller companies in the Russell 2000 and other indices which are outperforming. We’ll have to see if this trend persists – it will be interesting if it does. But if history, or at least recent history, tells us anything it’s that it’s been painful for many investors to stray too far away from the growth investing thesis. Doing so has led to underperformance, and given the fact that most money managers care about keeping their jobs as the number one priority, this means outsized attention will likely continue to go to the mega-cap NASDAQ stocks most investors are well aware of.

For investors who buy into this thesis, and want to consider putting some capital to work in top NASDAQ winners with the ability to continue to outperform, let’s dive into three prominent options to consider.

Key Points About This Article:

• The rotation out of mega-cap tech stocks and into smaller growth stocks has been underway for a while, but the mega-cap tech trade appears to be where many investors want to be.
• For those expecting a capital rotation back into these large-cap tech stocks, here are three to really focus on right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Meta Platforms (META)

Meta Platforms (NASDAQ:META) remains a top Magnificent 7 out-performer, with META stock already up more than 52% on a year-to-date basis at the time of writing. This kind of move in a company of this size is certainly remarkable, and has led many investors to reconsider diversifying away from the social media and AI giant.

Meta’s core business, of course, is its Facebook, WhatsApp, Instagram, Threads and other online social media businesses. These businesses provide the cash cow for the company to reinvest significant amounts of capital in growing its non-core segments. For years, that capital has been directed toward the metaverse (hence the name change), and the company is still spending big there. But over the past year, Meta has diverted a significant amount of capital to investing in its AI tools to provide even more dominance in its core business.

With extensive first-party data from its 3.27 billion users, nearly 600,000 Nvidia H100 GPUs, and its own custom AI chip, Meta is becoming a formidable foe in this AI race. The company has also very notably developed Llama, its proprietary AI model, integrating it across its apps and offering it to developers. Meta is thus creating a fully controlled AI ecosystem, and hopes to be one of just a few winners in this space at the end of the day.

I think Meta stands out in the AI space due to its comprehensive approach, unlike others like Nvidia, Apple, or Alphabet. While Nvidia provides chips, and Apple uses OpenAI’s models, Meta leverages its strong digital advertising base, AI tools, and $150 billion in annual revenue to enhance ad effectiveness. With ad impressions and prices up 10% year-over-year, and anticipated double-digit growth, META stock, trading at 25-times estimated 2024 earnings with a PEG ratio of 1.3, presents a buying opportunity on any major dip. At least, that’s my view.

Amazon (AMZN)

Amazon’s (NASDAQ:AMZN) stock price has historically tracked its operating profit, peaking with profit increases and dropping with declines. In the first half of 2024, operating income surged 141% year-over-year, driven largely by AWS, which contributed 84% of Q2’s operating profit. Given AWS’s projected annual growth of 15% to 21% through 2028, the strong fundamentals of this core earnings driver suggest a positive outlook for long-term investors.

For the quarter ending June 30, Amazon reported $53 billion in free cash flow and holds $86 billion in cash and equivalents, positioning the company well to continue to make aggressive investments. Key growth drivers include a $4 billion stake in AI startup Anthropic and an $11 billion data center project in Indiana. These moves enhance Amazon’s competitive edge in AI and semiconductors, indicating that current growth is just the beginning.

Amazon’s current price-to-free-cash-flow ratio of 37.1 is well below its 10-year average, despite the company’s growth and sophistication. Investors seem to undervalue Amazon’s AI investments, unlike its peers in the Magnificent Seven. With substantial cash reserves and ongoing AI-driven growth, Amazon appears to be a top buying opportunity among mega-cap tech stocks right now.

Nvidia (NVDA)

This list of top NASDAQ stocks to consider really wouldn’t be complete without discussing Nvidia (NASDAQ:NVDA). The semiconductor giant is set to report earnings next week (on Aug. 28). This quarterly earnings report is set to be a hot one, with revenue expectations shooting up to $28.5 billion in revenue (at least according to the whisper numbers), above its forecast of $28 billion. Additionally, earnings are also expected to more than double to $0.64 per share. With strong demand for its AI GPUs, Nvidia has seen a 427% year-over-year increase in data-center revenue and a 262% overall revenue surge in Q1. Despite potential delays in its Blackwell chips, robust demand for its H100 and H200 processors is likely to drive continued sky-high year-over-year growth rates.

Nvidia CFO Colette Kress noted that the company continued to see strong demand for its H100 processor despite the launch of the H200. Continued strong demand, and a lack of availability for the company’s higher-powered chip, should continue to provide the sort of earnings beat investors have growth accustomed to.

Of course, major risks exist with this upcoming earnings report. Any sort of top or bottom line (or guidance) miss could lead to a sharp drop in NVDA stock. Accordingly, I wouldn’t be surprised to see some hedging take place prior to earnings, particularly considering how high this stock has flown of late.

Nvidia’s outlook in terms of its stock price largely depends on the length of the Blackwell chip delay. A brief delay may have minimal impact, but a three-month setback could hurt performance. Despite risks from an accelerated development cycle, Nvidia’s stock remains attractive with a forward price-earnings multiple around 30-times, reflecting strong growth prospects. We’ll have to wait and see if the company delivers, but I remain in the bullish camp for now in this regard. 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.