Investors bore witness to the stock market’s humbling plunge in 2022; a turbulent year fueled by decades-high inflation and a steep ascent in interest rates. The Nasdaq Composite sustained a substantial blow, nosediving by 35%. However, demonstrating remarkable resilience, it rebounded with gale force, surging by 44% in 2023.

Amidst these tumultuous undulations of the market, keen observers who take their cue from historical trends discern an auspicious pattern. A glance at the past reveals that following a bear market resurgence, the Nasdaq has shown an average gain of 19% every year since 1972, instilling confidence in the present rally’s potential for further momentum. Though investing offers no certainties, history affirms that the ongoing rally possesses a historical advantage.

Moreover, the driving force behind this year’s rally appears to stem from the resurgent interest in artificial intelligence (AI) among investors. Let’s delve into two stocks strategically positioned to reap the bounteous rewards of AI’s burgeoning applications and heightened allure.

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AI Powerhouse No. 1: Alphabet

Consider this: A venerable colossus that dominates multiple industries, and ranks as a formidable contender in yet another sector. Such a rare gem exists in the form of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), presenting myriad compelling reasons for investors to include it in their portfolio.

Foremost, Google’s iron grip on internet search, commanding 92% of the market, represents an unparalleled industry stronghold. This supremacy owes it currency to the AI algorithms meticulously cultivated and honed by Google over decades, endowing the company with an unassailable edge. Alphabet plans to fortify its dominance by integrating generative AI capabilities into its flagship search function.

Alphabet’s astute strategy purposefully exploits its search supremacy as a conduit for digital advertising leadership, positioning it at the industry’s pinnacle. With 30% of global digital ad sales in 2022 under Google’s dominion, the company is primed to extend its lead as the definitive frontrunner in 2023. Furthermore, its suite of generative AI tools significantly enhances the efficacy of online marketing campaigns for advertisers.

Bolstering its eminence, Alphabet exerts impressive influence in the consumer sector courtesy of its portfolio of nine products, each boasting over 1 billion users. This pantheon encompasses Search, Android, Chrome, Gmail, Google Drive, Maps, Google Play Store, YouTube, and Photos. Harnessing this expansive reach, Google ingeniously integrates AI across its array of offerings, with more innovations on the horizon.

Collectively, Alphabet’s extensive network of interlinked products and services acts as a launchpad for its AI ambitions, foreshadowing substantial dividends in the years to come.

Crucially, Alphabet’s stock presents a historic bargain. Priced at approximately 5 times next year’s sales, it stands at a remarkable discount compared to its five-year average price-to-sales ratio of 6. Given the multiple catalysts poised to propel Alphabet’s stock higher, this discounted valuation is unlikely to endure.

AI Powerhouse No. 2: Amazon

Enter Amazon (NASDAQ: AMZN), a juggernaut with an expansive reach catering to consumer and business clients alike. Paralleling Alphabet, Amazon commands an industry-leading position in two sectors and stands as a formidable contender in the third, thereby securing a broad customer base poised to reap the rewards of its AI endeavors.

Within the sphere of e-commerce, Amazon towers over its competitors, commanding a staggering 38% share of all U.S. online retail sales in 2022–surpassing the combined total of its 14 closest rivals, according to data from online provider Statista.

While competitors make inroads, Amazon is fortifying its dominion by leveraging generative AI tools to elevate the relevance of recommendations, enhance the accuracy of product reviews, and empower sellers to craft more compelling product descriptions.

Pioneering cloud computing, Amazon Web Services (AWS) maintains a commanding lead in cloud infrastructure services, boasting a market share of approximately 31%, per data from cloud provider Canalys. This unparalleled advantage furnishes the company with a captive audience and target demographic for its AI services.

Of mounting significance to Amazon is digital advertising, which accrued a staggering $44 billion in revenue over the trailing-12-month period–a noteworthy 22% increase. This achievement holds particular weight given the prevailing economic headwinds and the industry-wide deceleration in this domain.

Amazon, ranked third in digital advertising, positioned just behind Alphabet and Meta Platforms, will witness further impetus to its ad revenue with the implementation of “limited advertising” as the default for Prime Video commencing in early 2024.

Of Amazon’s three core businesses, each stands to gain substantially from its foray into the realm of AI, with cloud computing perhaps reaping the most bountiful rewards. Amazon recently unveiled Amazon Bedrock, offering AWS clients a diverse array of available AI models. The platform also facilitates the creation of custom generative AI applications, enriched by the seamless integration of proprietary user data, rendering the apps even more potent.

Despite this prodigious potential, Amazon’s stock trades at a historic discount, priced at just 2 times forward sales–a markdown from its five-year average of 3.5. Savvy investors are presented with an opportune moment to secure shares before Amazon’s ongoing rally ascends to even loftier heights.

The Time Is Nigh

A year unfolds with AI seizing the limelight, but experts concur that the best is yet to come, even as the scale of this momentous opportunity remains the subject of impassioned debate.

Analysts from Morgan Stanley and Goldman Sachs offer two of the more conservative forecasts, projecting incremental expenditure of $6 million on AI, synonymous with the technological marvel at the heart of the 21st-century economy, teeming with newfound possibilities. The wise investor would be remiss not to embrace the promising fortuity the horizon presents.