The top stocks of 2023

This year proved to be better than expected for the stock market. As of Dec. 27, the S&P 500 is at 4,775 and up 24% year to date. At that level, it’s less than 25 points off its all-time high of 4,796, which it could easily hit by the end of the year.

The Dow Jones Industrial Average did set a record this year, and it is now at 37,545, up 13% YTD. The Nasdaq Composite has been the best performer of them all, up 44% to 15,075 as of Dec. 27. It is about 1,000 points off its all-time high of 16,057 set on Nov. 19, 2021.

The pundits were way off on their predictions as economists previously projected the S&P 500 to be somewhere between 3,675, which would have been a decline of 4%, and 4,500, which would have been a gain of 17%. The index obviously exceeded nearly all expectations.

Big Tech ruled in 2023, driven by artificial intelligence and semiconductor stocks. The tech sector accounted for two of the top three best-performing stocks of 2023.

1. NVIDIA, up 237%

The mega-cap semiconductor company NVIDIA (NASDAQ: NVDA) had an absolute blow-out year, up 237% YTD as of Dec. 27. The company has been buoyed by high demand for semiconductors and AI technology.

NVIDIA is a leading provider of graphics processing units (GPUs) for everything from computers to gaming consoles to cars. However, what supercharged its performance in 2023 was its strength in manufacturing chips for high-performance computing at data centers.

In particular, NVIDIA’s AI chips for data centers were in high demand, as it solidified its position as the dominant player, gaining market share with its chips that enable complex AI functions and tasks.

About 80% of the chipmaker’s record-setting $18.1 billion in revenue from the third quarter of its fiscal 2024 came from its data-center clients, and a significant chunk of that was for AI chips.

“Our strong growth reflects the broad industry platform transition from general purpose to accelerated computing and generative AI,” said Jensen Huang, founder and CEO of NVIDIA, in the Q3 earnings report.

Through the first nine months of its fiscal year, NVIDIA saw its revenue increase 140% to $27.5 billion and its net income climb a ridiculous 483% to $17.5 billion, or $7.07 per share.

The great thing for NVIDIA investors is that this growth is not expected to slow down. Thus, its valuation is reasonable for such a high-growth stock, so 2024 should be another good year.

2. Meta Platforms, up 195%

Meta Platforms (NASDAQ:META), the company that owns Facebook, was the S&P 500’s second-best performer in 2023, with its share price up about 195% YTD.

While it is certainly not the only factor, a big reason for Meta’s success in 2023 was its low valuation at the end of 2022. The stock fell 64% last year, and its price-to-earnings (P/E) ratio fell to a shockingly low 11. Investors could almost not afford to pass on that deal.

The social media giant has also been able to ride the technology and AI wave this year, but that’s not to say its performance has not been good. In fact, across its social media sites and properties, including Facebook, Reels, Instagram, Messenger and WhatsApp, Meta has seen a surge in daily active users.

AI has helped improve engagement and ad impressions, the latter of which was up 31% in the most recent quarter. Overall, Meta’s ad revenue is up some 12% year over year to $33.6 billion through the first nine months, and that accounted for some 35% of the total revenue over that stretch.

The company has also successfully executed its expense reduction initiative, which led to 7% lower costs in the third quarter. In addition, the price per ad was down 6% year over year, and all of this contributed to Meta’s net income jumping 164% to $11.6 billion. This more than offset the losses in its struggling virtual reality business, Reality Labs.

Meta is also relatively cheap with a P/E ratio of 31 and a P/E-to-growth (PEG) ratio of just 0.93. It looks like it could be a decent buy for 2024.

3. Royal Caribbean Cruises, up 161%

The third top performer of 2023, Royal Caribbean Cruises (NYSE:RCL), is not in the tech sector or fueled by AI. However, it has benefited from several factors that have juiced its revenue and earnings.

Pent-up post-COVID demand for cruises has led to bookings that have significantly exceeded pre-pandemic 2019 levels. That, in addition to higher rates due to inflation, has resulted in a 68% increase in revenue through the first three quarters of the year, to $10.6 billion. The cruise line’s net income surged to $1.4 billion after a net loss of $1.7 billion through the first three quarters of 2022. While rates are higher, cruise lines in general have been helped as they are seen as a relative discount related to land-based vacations.

Royal Caribbean had been extremely cheap after a terrible 2022, so it also got a boost from investors buying low. However, its P/E has crept up to almost 40 times earnings, so that bears watching. Nonetheless, its outlook for 2024 is promising, as bookings for 2024 are ahead of 2019 levels, rates are still higher, and new ships that debuted in 2023 or are forthcoming in 2024 should provide additional tailwinds.

All three of these best-of-2023 stocks are worth watching for 2024, with NVIDIA being the best of the bunch.