Last year was a banner year for the so-called "Magnificent Seven" stocks. These industry leaders were among the top performers in the Nasdaq Composite in 2023, helping the tech-centric index push out of its slump and notch gains of 43% for the year. It now sits about 4% below a new all-time high, which will mark the final criteria signaling the arrival of the next Nasdaq Composite bull market. Here's a breakdown of how the group performed in 2023:
- Nvidia (NVDA 0.22%): Up 239%
- Meta Platforms: Up 194%
- Tesla (TSLA 0.69%): Up 102%
- Amazon (AMZN +0.30%): Up 81%
- Alphabet: Up 58%
- Microsoft: Up 57%
- Apple: Up 48%
Despite these average-busting performances, some believe additional upside remains. In fact, a trio of Wall Street analysts suggest that three of these stocks still have upside potential of between 43% and 82% over the coming year or so.
Image source: Getty Images.
1. Tesla: 84% implied upside
Tesla had a banner year in 2023, accomplishing what seemed unimaginable just a few short years ago. The Model Y -- the company's most popular car -- drove to new heights, nabbing the title of world's best-selling car, according to online industry publication Motor1. What's particularly notable is that Tesla was the first electric vehicle to achieve this distinction. Over the long term, Tesla's goal is to increase vehicle production by a compound annual growth rate (CAGR) of 50%, but that will come with peaks and valleys.
However, Tesla's forecast for 2024 sent many investors looking for a potential off-ramp. Management said that growth this year "may be notably lower" than it delivered in 2023, saying that its auto sales were "currently between two major growth waves." While fair-weather investors -- fearing the worst -- took shelter, those with a long-term outlook stayed put.
Despite the company's tepid outlook, Morgan Stanley analyst Adam Jonas remained the symbolic leader of the bullish camp, keeping an overweight (buy) rating on the stock with a top price target of $345, implying additional upside of 84%, compared to Thursday's closing price. He noted that Tesla's outlook provided "almost no" new information and didn't specify what "notably lower" means. His models already factored in lower growth for this year, and there was nothing Tesla could do to stem the bearish tide among some investors.
NASDAQ: TSLA
Key Data Points
At roughly 7 times forward sales, Tesla is relatively cheap in the context of its overall opportunity, but it's certainly a buy on any weakness. If the analyst's view is right -- and I firmly believe it is -- Tesla stock still has a long growth road ahead, even though the ride may be bumpy.
2. Nvidia: 76% implied upside
The surprise development of 2023 was the emergence of generative artificial intelligence (AI), which was a significant driving force behind the market rebound. The company best positioned to benefit from this secular tailwind is Nvidia. It rose to prominence by developing a graphics processing unit (GPU) that rendered lifelike images, thereby revolutionizing the gaming industry.
Parallel processing, or the ability to break up large, unwieldy computing jobs into smaller, more manageable chunks, helped make Nvidia's GPUs the gold standard in machine learning -- an established branch of artificial intelligence. That also made the company a shoo-in to adapt its software algorithms to take on the latest generation of AI.
On the back of two successive quarters of triple-digit year-over-year growth, management expects the tide to continue. For its fiscal 2024 fourth quarter (ended Jan. 31), Nvidia is guiding for revenue of $20 billion, an increase of 231% year over year, driven by the ongoing adoption of generative AI.
Despite a surge of 239% for the stock last year, Rosenblatt analyst Hans Mosesmann believes there's more to come. As the self-proclaimed "most bullish analyst on Nvidia," the analyst has a buy rating on the stock, with a price target of $1,100, suggesting it could soar another 76% from here. The analyst called the company's triple-digit revenue growth "unprecedented," saying the stock is "just getting started."
NASDAQ: NVDA
Key Data Points
He also believes AI will spark a massive upgrade cycle in the data center industry, with an installed base of roughly $1 trillion. With an estimated 95% market share of the GPUs used in data centers, Nvidia has the most to gain from this trend.
Finally, when factoring in its growth rate, Nvidia trades at a price/earnings-to-growth ratio (PEG ratio) of less than 1, the standard for an undervalued stock. By that measure, it's the cheapest of all the Magnificent Seven stocks.
3. Amazon: 45% implied upside
It's not very often a company controls the top spot in two industries and is a leading contender in a third, but that's the case with Amazon. It's the undisputed frontrunner in e-commerce and leads the cloud infrastructure industry it pioneered. If that weren't enough, it's also the world's No. 3 provider of digital advertising.
Those three business segments represent a strong foundation for future growth, which will likely be spearheaded by AI. Amazon has a long history of integrating advanced algorithms into its business operations. Amazon uses AI to manage inventory levels at its warehouses, map out delivery routes, and make product recommendations to customers on its website, among many other things.
NASDAQ: AMZN
Key Data Points
However, its greatest opportunity is providing AI to users of its industry-leading cloud infrastructure offerings, Amazon Web Services (AWS). The company offers a growing suite of AI models, which includes its own.
Despite a stellar performance in 2023, Redburn analyst Alex Haissl believes there's plenty of upside ahead. The analyst maintains a buy rating on the stock and a price target of $230, implying additional gains for investors of 45%. He posits that investors underestimate how quickly Amazon's growth will reaccelerate, arguing that "the outlook for Amazon is exceptional."
Even after soaring 81% last year, Amazon remains remarkably cheap, trading for roughly 2 times next year's sales. Given the potential for AI-fueled growth and a rebound in its foundational business, investors shouldn't sleep on Amazon stock.
