Nvidia (NVDA 0.03%) and Meta Platforms (META -2.41%) have been the two best-performing "Magnificent Seven" stocks over the past 12 months. Nvidia's stock surged more than 230% as the explosive growth of the AI market drove more companies to upgrade their data center GPUs to process complex AI tasks. Meanwhile, Meta's stock rallied nearly 140% as the growth of its advertising business accelerated again.
But should investors still buy either of these high-growth tech stocks today?
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Nvidia is still firing on all cylinders
Nvidia once generated most of its revenue by selling discrete GPUs for gaming PCs. But over the past few years, the chipmaker rolled out higher-end GPUs for accelerating machine learning and AI tasks at data centers.
That move gave it a firm foothold in the growing AI market, and its sales of data center GPUs soared and eclipsed it sales of gaming GPUs. It generated 78% of its revenue in fiscal 2024 (which ended this January) from data center GPUs.
Its revenue soared 126% that year as its adjusted earnings per share (EPS) jumped 288%. That marked an astonishing acceleration from its flat revenue growth and 25% adjusted EPS decline in fiscal 2023.
Most of its growth was driven by the rising popularity of OpenAI's ChatGPT and other generative AI platforms, which prompted more companies to buy its data center GPUs to upgrade their own AI capabilities. Its sales of gaming GPUs also stabilized in the second half of the year as the PC market recovered.
In fiscal 2025, analysts expect Nvidia's revenue and adjusted EPS to grow 81% and 89%, respectively, as the AI market continues to expand. Based on those expectations, Nvidia's stock still looks reasonably valued at 37 times forward earnings. Its smaller rival AMD (NASDAQ: AMD), which is growing at a slower rate, trades at 49 times forward earnings.
Nvidia remains the top seller of shovels and picks for this AI gold rush, but investors shouldn't ignore the longer-term threats. AMD is already rolling out cheaper data center GPUs, major customers like OpenAI, Microsoft, and Alphabet's Google are developing their own first-party AI chips, and other major chipmakers like Intel and Qualcomm are teaming up to develop an open source alternative to Nvidia's closed-source CUDA programming platform. All of these challenges could prevent Nvidia from monopolizing the booming market for AI accelerator chips.
Meta is recovering from a tough slowdown
Meta served 3.98 billion monthly active people across its entire family of apps (Facebook, Messenger, Instagram, and WhatsApp) at the end of 2023. But back in 2022 its revenue and EPS fell 2% and 38%, respectively. That slowdown was caused by Apple's privacy changes on iOS (which disrupted its ability to mine data from third-party apps), tough competition from ByteDance's TikTok and other social media apps, and the macro headwinds for digital ads.
As Meta's advertising business sputtered out, it ramped up its spending on its unprofitable Reality Labs segment, which houses its virtual and augmented reality devices. That mix of slowing revenue growth and rising expenses spooked the bulls.
But in 2023 Meta's revenue and adjusted EPS grew 16% and 73%, respectively. It successfully countered Apple's changes by collecting more first-party data with its AI algorithms, kept pace with TikTok by expanding its Reels short video platform, and attracted more ad dollars from Chinese gaming and e-commerce companies that were targeting overseas consumers. Those Chinese advertisers accounted for 10% of Meta's total revenue for the year.
Meta continued to expand its Reality Labs division, yet it still generated enough cash to initiate its first dividend and raise its current buyback authorization by $50 billion. Those confident moves suggested that brighter days were ahead, and analysts expect its revenue and EPS to rise 17% and 35%, respectively, in 2024. It could even easily exceed those estimates if the U.S. government finally bans its top competitor TikTok this year.
Meta's stock looks reasonably valued at 25 times forward earnings, but its growth could be throttled by other longer-term challenges. The Chinese advertisers that bought so many ads across its apps in 2023 could abruptly rein in their spending. TikTok might dodge a ban in the U.S. and ramp up the pressure on Instagram and Reels again, and Meta still needs to deal with several unresolved antitrust and privacy investigations in the U.S. and Europe.
The better buy: Nvidia
Both of these Magnificent Seven stocks are solid long-term investments. But if I had to choose one over the other, I'd buy Nvidia instead of Meta for three simple reasons: It's growing a lot faster, it has a wider moat, and it doesn't look overvalued relative to its growth potential yet. Meta will remain the 800-pound gorilla of social media for the foreseeable future, but it will also likely face significantly more macroeconomic, competitive, and regulatory headwinds than Nvidia.
