The Magnificent Seven and Big Tech stocks dominated the markets this year. But what's in store for 2024? Citi Director of Internet Equity Research Ygal Arounian joins Yahoo Finance Live to discuss his outlook for internet stocks next year. Arounian expects another strong year for internet stocks for several reasons, including strong fundamentals, potential Federal Reserve rate cuts, and a recovery in consumer spending.

Arounian expects the generative AI hype to continue into 2024, saying he thinks that next year, investors will see more "actual real implementation of AI across different end businesses that will start to drive more meaningful change."

When it comes to stocks Arounian likes for 2024, he is picking The Trade Desk (TTD), Wayfair (W), and VeriSign (VRSN).

Click here to watch the full interview, including more insight into Arounian's stock picks, on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

JOSH LIPTON: Meanwhile, the Magnificent Seven dominated markets this year. And now, as investors searching for returns in other pockets of tech, and our next guest says, one area they might turn to in the new year is internet stocks. Ygal Arounian, Director of Internet Equity Research at Citi, joining us now. Ygal, it is great to see you. So strong year for your coverage universe, Ygal, average return about 40%. And you see that momentum continuing, Ygal, in 2024. How come? Walk us through the reasons.

YGAL AROUNIAN: Yes, certainly. So 2023 was a great year for internet. It was a rebound year of what was a really tough 2022. Like you said, Josh, our coverage across about 50 internet stocks was up about 40%. A lot of that was really driven by, like you said, the Magnificent Seven and larger cap internet stocks.

We think the fundamentals within the internet universe are continuing to be strong. If anything, they'll strengthen into next year. You know, that includes share gain across a number of sectors, like e-commerce, like digital advertising, like website builders, for example. And all the momentum that's kind of driven internet over the last few years should continue.

Now, in a better inflationary environment, a better consumer environment, hopefully, as we kind of get through this last leg of a more challenged consumer, lower rates, I think all that supports growth within internet stocks. We saw a good amount of multiple expansion in 2023. But we're still below historical averages across the internet sector. So there's more room to run within multiple expansion. We think we can start to see upward estimate revisions.

We think all that sets up for a really good year in 2024 across internet. And then one of the last things is that so much of the gains have been centered within those larger cap stocks. And we're already starting to see investors focus on a broadening of investments. So looking for more outside of those. And we think all of that really sets up for a great year in 2024.

JULIE HYMAN: Ygal, it's Julie. It's great to see you. One of the other things, of course, that was a big theme this year has been generative AI and the sort of birth of the excitement around it. How do you think that's going to play out for your coverage next year? How are these companies going to start using it? How is it going to help them? What kind of changes do you think we're going to see here?

YGAL AROUNIAN: Yeah, so generative AI obviously blasts onto the scene-- burst onto the scene this year. And one of the things that I think we'll see more of next year is actual real implementation of AI across different end businesses. That will start to drive more meaningful change.

So this year is kind of, you know, here's gen AI. Here's what it is. And everyone's starting to learn and figure it out, especially among the investor community. There was a lot of debate on who would be the gen AI winners, who would be the gen AI losers.

And as we've kind of gone through the year, we've started to understand a little bit better how it'll actually impact different businesses. And so I think we're going to see a lot more of that in 2024. That will impact different companies and different businesses in different ways. But we think that's going to be a huge theme next year.