While 2022 was among the worst years in recent memory for many investors, the market recovery over the past year is providing welcome relief. The Nasdaq Composite has helped lead the charge, up 42% so far in 2023, sitting just 7% below its all-time high (as of this writing). Once the index exceeds that benchmark, it will have checked off the final criteria necessary to signal the arrival of the new bull market.
Yet, the recovery has been remarkably uneven. While a great many stocks are still struggling to gain ground, the so-called Magnificent Seven (listed below in alphabetical order) have outpaced the broader market by a wide margin so far this year (returns are as of market close on Friday):
- Alphabet: Up 50%
- Amazon (AMZN 0.75%): Up 78%
- Apple: Up 52%
- Meta Platforms: Up 177%
- Microsoft: Up 54%
- Nvidia (NVDA 0.03%): Up 235%
- Tesla (TSLA 15.31%): Up 106%
Even after the stellar performances this year, certain Wall Street analysts suggest that three of these stocks still have significant upside potential and could gain between 50% and 125% over the course of 2024.
Image source: Getty Images.
Magnificent Seven buy No. 1: Tesla (50% implied upside)
There's no getting around the fact that Tesla has revolutionized the automobile industry, driving mainstream adoption of electric vehicles (EVs). In fact, in 2023, Tesla did what would have been unthinkable just a few years ago. The company's most popular car -- the Model Y -- crashed through the glass ceiling, becoming the world's best-selling car. To put the icing on the cake, Tesla was the first ever EV to achieve this distinction, according to automotive industry publication GreenCars.
The final numbers aren't yet in, but Tesla is expected to sell 1.8 million cars this year, which would represent growth of about 38% -- remarkable considering the economic headwinds of the past couple of years. Over the longer term, Tesla is working to increase vehicle production by a compound annual growth rate of 50%. Once the economic headwinds subside, demand will likely ramp up.
Despite Tesla's lofty gains so far this year, Morgan Stanley analyst Adam Jonas is still remarkably bullish, maintaining a buy rating on the stock with a price target of $380, implying additional upside of 50%. He believes investors underestimate the potential of Tesla's ancillary services, including batteries and full self-driving. Furthermore, he suggests the competition is outmatched, and Tesla will continue to capture even greater EV market share.
Tesla remains a battleground stock. Of the 47 analysts who issued an opinion in November, 18 rated the stock a buy or strong buy, 21 rated it a hold, and 8 suggested selling, with most citing the stock's frothy valuation. That certainly bears consideration, as Tesla is currently selling for 9 times sales. That said, it's a significant discount to Tesla's three-year average price-to-sales ratio of 15.
To be clear, Tesla stock won't be for everyone, but for those willing to accept some additional risk, a little bit can go a long way.
Magnificent Seven buy No. 2: Amazon (58% implied upside)
There's a lot to like about Amazon, particularly the diverse nature of the company's business interests. Not only is Amazon the industry leader in digital retail and cloud infrastructure, but it's a growing force in online advertising. The challenges of the past couple of years notwithstanding, Amazon has a solid foundation upon which to build its future growth.
For example, Amazon remains the undisputed e-commerce leader, controlling roughly 38% of the market last year, according to online data provider Statista. For context, that's more than the next 14 digital retailers combined. The improving economic environment will no doubt boost Amazon's fortunes as consumers breathe a sigh of relief and resume their historical spending patterns.
Image source: Statista.
Businesses also reined in spending in 2023, which has weighed on Amazon's cloud business. Furthermore, throughout the downturn, Amazon maintained its position as the No. 1 provider of cloud infrastructure services, with 31% of the market in the third quarter, according to market analyst Canalys. The rise of generative artificial intelligence (AI) over the past year represents a compelling opportunity for Amazon, as the company expands the list of AI services it makes available to its cloud computing customers.
Even after Amazon's robust performance so far this year, Redburn analyst Alex Haissl believes there's still much more to come for the company. The analyst maintains a buy rating on the stock and a price target of $230, implying an additional upside of 53%. He suggests the market underestimates how quickly Amazon's growth will ramp back up, saying "The outlook for Amazon is exceptional."
The analyst isn't alone in his bullish outlook. Of the 54 analysts who issued an opinion in November, 53 rated the stock a buy or strong buy, and not one recommended selling. That's remarkable, considering Wall Street never agrees on anything.
Finally, Amazon's valuation remains extremely compelling. Even after a significant move higher this year, the stock is still selling for roughly 2 times next year's sales. Given its growth potential, that's reason enough to buy the stock.
Magnificent Seven buy No. 3: Nvidia (125% implied upside)
The strong and growing demand for generative AI has been the big tech story of the year, and nowhere is that more apparent than Nvidia. As the gold standard in machine learning and other established areas of AI, the company quickly pivoted to adapt its technology to usher in this latest generation of algorithms.
The company wasn't content to rest on its laurels, releasing the H200 Tensor Core GPU, specifically designed for the rigors of AI processing. The new AI superchip delivers "nearly double the capacity and 2.4x more bandwidth compared with its predecessor, the Nvidia A100."
After delivering two consecutive quarters of triple-digit, year-over-year growth, management is guiding for more of the same. Nvidia is calling for revenue of $20 billion, an increase of 231% year over year, fueled by record adoption of AI.
These results propelled Nvidia stock higher this year, but Rosenblatt analyst Hans Mosesmann said he believes there's a lot more upside ahead. The analyst maintains a buy rating on Nvidia with a price target of $1,100, suggesting the stock could surge 125% from here. The analyst cited the company's triple-digit revenue growth, saying performance of that caliber is "unprecedented."
He also believes investors are underestimating the trend by data centers to adopt more robust processors to handle the rigors of AI and high-performance computing. With an installed base estimated at $1 trillion, that suggests a lot of upgrades ahead, with Nvidia leading the charge.
Of the 53 analysts who issued a rating in November, 51 rated Nvidia a buy or strong buy, and not a single one recommended selling.
Many investors will point to Nvidia's valuation as a reason to avoid the stock, but that view is myopic. The stock trades at a price/earnings-to-growth ratio (PEG ratio) of less than 1, compared to more than 2 for the S&P 500. By that valuation measure -- which factors in its outsized growth -- it's the cheapest of all the Magnificent Seven stocks.
Rapid adoption of AI is just beginning, which should fuel Nvidia's growth for years to come.
