The Nasdaq Composite has been on a tear for over two years, driven by factors such as the dawn of artificial intelligence (AI), a U.S. Presidential election, declining inflation, and the beginning of long-awaited interest-rate cuts. After jumping 43% in 2023 and 33% in 2024, the tech-focused index has shown strong momentum that could carry over into 2025. History suggests that the market likely has further to climb, with the tech-centric index climbing 19% on average in the year following gains of 30% or more since 1972. This suggests that the rally could continue well into 2025.

As investors look to capitalize on the expected Nasdaq rally, it's essential to consider stocks with strong growth prospects and attractive valuations. Here are three AI stocks that align well with the expected market performance and offer compelling investment opportunities:

1. Nvidia (NASDAQ: NVDA)
Nvidia's graphics processing units (GPUs) are the gold standard for gaming, cloud computing, data centers, and machine learning, which are all sectors expected to grow significantly in the coming years. The rapid adoption of generative AI has sent Nvidia's stock soaring, and demand is expected to continue growing, aligning with the expected Nasdaq rally. Despite its strong performance, Nvidia's stock is attractively priced, selling for just 31x next year's expected earnings, which is reasonable given its growth prospects and the expected market performance.



2. Palantir (NASDAQ: PLTR)
Palantir's AI platform (AIP) is gaining traction, with the customer base growing by 39% to 629 customers in Q3 2024. This growth is expected to continue, aligning with the expected Nasdaq rally. Palantir's remaining performance obligations (RPOs) and remaining deal value (RDV) are both growing, indicating a robust pipeline and strong future growth prospects. Despite its lofty valuation, Palantir's growth potential and AI prowess make it an attractive investment, aligning with the expected Nasdaq performance.

3. Microsoft (NASDAQ: MSFT)
Microsoft's investment in AI, particularly its productivity-enhancing suite of AI assistants, Copilot, is expected to generate significant revenue growth in the coming years. The company's Azure Cloud is already reaping the rewards of its AI strategy, generating 30% growth in fiscal 2024, outpacing its rivals and aligning with the expected Nasdaq performance. Microsoft's stock is selling for 33 times forward earnings, which is a slight premium compared to the S&P 500's P/E ratio of 31, but still reasonable given its growth potential and the expected market performance.



In conclusion, the Nasdaq Composite is expected to continue its rally in 2025, driven by factors such as AI adoption and market momentum. Investors looking to capitalize on this trend should consider stocks with strong growth prospects and attractive valuations, such as Nvidia, Palantir, and Microsoft. These AI stocks align well with the expected market performance and offer compelling investment opportunities for those looking to ride the wave of the Nasdaq rally. However, it's essential to conduct thorough research and consider the risks and challenges associated with each investment before making a decision.