The returns of the "Magnificent Seven" stocks have trounced the returns of the growth-centric Nasdaq Composite index over the last year, and they continue to do so in 2024. Year to date, the group has returned 12.4%, almost doubling the Nasdaq's returns, based on the performance of the Roundhill Magnificent Seven ETF.
Among this elite group of tech stocks, Nvidia (NVDA +2.71%) and Amazon (AMZN +0.20%) are showing solid business growth and still offer upside from their recent highs. Here's why these two Magnificent Seven stocks remain solid picks right now.
Nvidia
Nvidia has been one of the best stocks to ride the growth in artificial intelligence (AI), as its share price soared by 239% over the last 12 months. The good news for investors late to the party is that its skyrocketing growth may have a while to play out. The stock remains attractively valued relative to its underlying business growth, and it's still one of the best AI stocks to buy for a few reasons.
One technique for getting a read on end-market demand for a company's products is to look at what other companies with adjacent businesses are reporting. Super Micro Computer makes plug-and-play rack systems for data centers, which include Nvidia's GPUs.
Supermicro reported that its revenue grew 103% year over year in the most recent quarter as demand grew for AI rack solutions based on Nvidia's H100 chip. This was a massive acceleration over Supermicro's previous quarter and suggests demand for Nvidia's chips is not slowing down.
NASDAQ: NVDA
Key Data Points
Analysts are raising their annual revenue estimates for Nvidia for the next few years, even though growth expectations were already sky-high for the GPU leader. The stock's modest valuation still makes Nvidia an attractive stock to buy. It currently trades at 35 times next year's consensus earnings estimate, which looks reasonable given Nvidia's robust growth.
There is $1 trillion worth of data center infrastructure to fuel Nvidia's growth for a long time.
The emergence of AI is forcing more companies to adopt accelerated computing and invest in GPUs, which is why Nvidia is seeing such tremendous growth. It generates $32 billion in trailing revenue from its data center segment, and given its estimated 80% market share in the AI chip market, it is well positioned to deliver more growth and returns for investors.
Amazon
Amazon is an incredibly strong business that has multiple revenue streams to drive returns for shareholders, including cloud services, advertising, and online retail sales. While its cloud unit, Amazon Web Services, gets most of the attention on Wall Street, it's the company's improving growth in e-commerce that is driving the stock higher.
NASDAQ: AMZN
Key Data Points
Some might argue that AI technology could make it easier for consumers to search the web and find the products they want at other retailers, which could hurt Amazon in the long run. However, this underestimates the human tendency to stick with trusted brands. It also overlooks the investments Amazon is making in AI and infrastructure to improve its retail service.
Amazon is in the process of boosting its delivery speed, which will make it more difficult for competitors to catch up. It said it achieved the fastest delivery speeds in its history in 2023, with over 7 billion units arriving the same or next day.
One benefit of faster delivery is more frequent shopping behavior. Amazon's online sales growth accelerated every quarter last year, but the company's profits are also up thanks to cost cuts and improved inventory efficiency.
AMZN Net Income (Quarterly) data by YCharts.
AI will only make Amazon's brand stronger. Many customers visit Amazon.com almost by default instead of searching for products on Google, and Amazon is about to push its value proposition further with the launch of Rufus, a new shopping assistant powered by generative AI.
Amazon's improving shipping speed and opportunities to enhance the shopping experience with new AI tools will protect its competitive moat. Meanwhile, the stock still trades at a fair valuation of about 3.1 times trailing revenue, which is within its 10-year trading range. This means that as the company's e-commerce business recovers, the stock could deliver market-beating gains over the next few years.
