Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. With premium investing solutions, free guidance, market analysis on Fool. com, top-rated podcasts, and the non-profit The Motley Fool Foundation, we reach millions of people every month. The Nasdaq Composite showed remarkable growth in 2023, driven by generative AI. However, this next-generation technology is still in its early stages. While Microsoft and Nvidia have been leaders in the AI revolution, there is still much progress to be made. This article provides free opinions, but for instant access to top analyst recommendations, in-depth research, investing resources, and more, become a Motley Fool member today. The stock market's impressive gains in 2023 have slowed down at the start of the new year, making investors cautious after the Nasdaq Composite recorded a 43% increase. However, historical data suggests that following a bear market rebound, the Nasdaq typically rallies by an average of 19%. The extent of the rally varies each year, with increases ranging from 7% to 38%. Given the ongoing economic recovery, it is likely that the current market rally will continue in 2024.

Generative AI played a significant role in driving the market surge last year, and companies like Microsoft and Nvidia are well-positioned to profit from this AI revolution. Microsoft is known for its Windows PC operating system and Office suite, but it has also made substantial investments in AI. It developed Copilot, an AI-powered assistant aimed at streamlining tasks and increasing productivity. Microsoft experienced high demand for Copilot even before its general availability, and the increased interest has positively impacted its Azure Cloud services. Nvidia, initially focused on graphics processing units (GPUs), recognized the potential for AI adoption early on. It holds a dominant market share in processors used in data centers and machine learning GPUs. As the demand for AI processing increases, Nvidia stands to benefit. In the third quarter of 2023, Nvidia achieved record revenue and impressive earnings per share growth. Despite its strong performance, Nvidia's stock still trades at a reasonable price/earnings-to-growth (PEG) ratio, suggesting it may be undervalued. The Motley Fool and its author, Danny Vena, have positions in both Microsoft and Nvidia.