2024 Will Be the Year of AI. 2 Top Stocks I Expect to Surge.

Artificial intelligence (AI) isn’t an empty buzzword in 2024. It’s the driving force behind the year’s most promising tech stocks. With the mostly academic AI developments of 2023 behind us, it’s time for AI-powered products and services with significant real-world utility. If you thought OpenAI’s ChatGPT was cool, you ain’t seen nothin’ yet.

And the new AI stuff should drive many tech stocks higher this year. In the words of Wedbush Morgan analyst Dan Ives, 2024 will be “the year of AI” and the tech sector in general should see stock gains in the 25% range. If that sounds like a lot, remember that the tech-heavy Nasdaq Composite (^IXIC -0.59%) index rose 43% last year — and that was still barely enough to heal the damage from a 33% plunge in 2022.

I think Ives is on to something in Monday’s note to Wedbush clients. I’m particularly thrilled about The Trade Desk (TTD 1.16%) and Duolingo (DUOL -4.18%), both poised to unleash some game-changing AI products with lucrative results for savvy investors. Hang on and I’ll show you what I mean.

Duolingo: This e-learning system won’t stop finding new subjects

Duolingo has experienced tremendous growth since its launch in 2011, attracting over 500 million registered users to its popular language learning app. But Duolingo is more than just learning 43 different languages — it has major expansion plans into other subjects.

In 2021, Duolingo launched a math app aimed at K-12 students. Early traction has been promising, with over 10 million downloads already. More recently, the company added full-fledged courses for elementary and intermediary math as well as the basics of reading and playing music — all in the same app as its well-known language courses. The new subjects are rolling out as we speak, available on Apple devices first with Android and web browser versions to follow in 2024.

Beyond math and music, Duolingo plans to expand into additional subjects like history and physics, opening the door to even broader consumer and education markets. Not right away, mind you — languages will be the company’s primary focus for the foreseeable future while the math and music courses aren’t even fully implemented yet. But in the long run, Duolingo is looking at any subject where multiple repetitions of facts and concepts can result in effective learning.

Despite its soaring rise, Duolingo has still only scratched the surface of its total addressable market in language learning. An estimated 1.5 billion people globally are interested in learning English, for example. Yet, Duolingo has only reached 1% of that English target so far, and that’s across several dozen language pairs. It’s not an apples-to-apples comparison, but the global market opportunity is larger than it looks from this perspective.

Furthermore, the company isn’t afraid to try new ideas. When the ChatGPT frenzy swept the globe in 2023, it didn’t take long before Duolingo launched an ultra-premium subscription plan where a specially trained chatbot offers realistic human-to-AI chatting experiences and also analyzes the reasons behind your language-training mistakes. See, I’m not kidding around when I call Duolingo an AI stock.

In summary, at a point where some consumer internet companies are struggling to find growth, Duolingo is still early in its long-term growth trajectory. There is ample room left to expand within languages alone. New subject additions then dramatically increase Duolingo’s total addressable market and opportunity. For investors, that is an exciting multi-year growth story worth watching closely. And I can’t wait to see what else MacArthur Genius Grant recipient Luis von Ahn will do with AI tools in the Duolingo framework.

The Trade Desk: The digital ad market is coming back with a bang

After a slump in 2022 and 2023 due to economic uncertainty and pullbacks in advertising spend, the digital advertising market is set to come roaring back — and The Trade Desk is poised to lead the way.

Despite the challenging market environment, the leading provider of ad-buying services across a variety of media platforms never stopped growing in the inflation-driven sector downturn. Sure, the pace of growth slowed down a bit, but I’m talking about a 21.4% year-over-year revenue jump at the lowest point. Many companies would call that a healthy sales gain, even in the best of times.

Here’s an interesting twist to the ongoing market recovery. The ad-buying market has relied heavily on so-called third-party cookies in years past, collecting data about users and their browsing habits for the benefit of ad buyers and sellers. Those cookies are going away in the second half of 2024, and some digital advertising experts are scrambling to find alternative data sources and solutions.

The Trade Desk saw this shift coming years ago, developing a system called Unified ID 2.0 in response. The company launched an ad-buying platform known as Solimar in the summer of 2021, putting Unified ID 2.0 in action way before it was a necessity. After polishing the usual imperfections out of this new system, The Trade Desk is more than ready to do business as usual in an era without third-party cookies.

And don’t forget about The Trade Desk’s proven AI acumen. This company built ad campaigns with automated AI smarts before it was cool. Its Koa AI tool has been helping ad buyers assess their audience reach since 2018, evolving into the more powerful Kokai system in 2023. It’s not a chatbot in the style of ChatGPT, but a robust collection of deep learning and machine learning tools aimed at making actionable sense out of Unified ID 2.0’s anonymized user-tracking data.

The Trade Desk’s stock rose 60% in 2023 but still trades 30% below the year-end price of 2021. The stock isn’t cheap, but it has richly deserved its premium valuation even in this challenging market. Now let’s see that lagging revenue growth (Percentage gains in the lower twenties during an economic crisis? Perish the thought!) accelerate as the inflation panic fades away. This AI-driven advertising technologist looks ready for another big year.