Technology stocks experienced a robust recovery last year, and nowhere was that more apparent than with the so-called "Magnificent Seven" stocks. These household names were among the top gainers in the Nasdaq Composite in 2023, pulling the tech-heavy index out of its slump and generating gains of 43% last year. The storied index now sits less than 1% below a new all-time high, which will check the final box signaling the onset of a new bull market.
Here's how the collective performed in 2023:
- Nvidia (NVDA 6.18%): Up 239%
- Meta Platforms: Up 194%
- Tesla (TSLA -1.11%): Up 102%
- Amazon: Up 81%
- Alphabet: Up 58%
- Microsoft: Up 57%
- Apple: Up 48%
Despite these market-beating performances, some market watchers believe there's more to come. In fact, a duo of Wall Street analysts suggest that two of these stocks still have upside potential of 78% and 80% over the coming year.
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Magnificent Seven buy No. 1: Nvidia
78% implied upside
There's a strong argument that 2023 was the year generative artificial intelligence (AI) came of age, and strong adoption of these next-generation algorithms helped fuel last year's market recovery. Of all the Magnificent Seven companies, one has demonstrated its ability to profit most from this secular tailwind: Nvidia.
The company pioneered the graphics processing units (GPUs) that create lifelike images in video games, revolutionizing the industry. The innovation that made this possible was parallel processing. Simply put, these chips have the ability to process a magnitude of mathematical calculations simultaneously by breaking up the job into smaller, more manageable pieces. Parallel processing solved the workload problem for machine learning, an established branch of AI, and Nvidia quickly became the gold standard for AI applications. When generative AI burst on the scene last year, Nvidia adapted its processors for the next generation of AI.
The company just delivered its third consecutive record quarter and expects its triple-digit growth to continue. For its fiscal 2025 first quarter (ending April 30), Nvidia is guiding for record revenue of $24 billion, an increase of 234% year over year. The company was clear this runaway train is being driven by the rapid and accelerating adoption of generative AI.
Despite a stock price surge of 441% since the beginning of last year, some believe there's more to come. Rosenblatt analyst Hans Mosesmann is the self-professed "most bullish analyst on Nvidia." The analyst recently reiterated his buy rating on the stock while boosting his price target of $1,400, suggesting Nvidia could soar another 78% from here. The analyst justified the move by saying "We are in the very early innings of what we call the Mother of All Cycles."
The analyst has previously echoed CEO Jensen Huang's assertion that AI will be the catalyst for a long-awaited upgrade cycle in data centers. With an installed base worth $1 trillion, this represents a massive opportunity for Nvidia, which controls an estimated 95% share of the market for GPUs deployed in data centers.
While the bears suggest Nvidia is expensive, I'd respectfully say that view is myopic, as the most commonly used valuation metrics don't factor in the company's triple-digit growth. Nvidia trades at a price/earnings-to-growth ratio (PEG ratio) of less than 1, the standard for an undervalued stock. By that metric, it's the least expensive of all the Magnificent Seven stocks.
Magnificent Seven buy No. 2: Tesla
80% implied upside
After a banner year in 2023, some investors have soured on Tesla. Yet the company achieved a number of remarkable milestones last year that suggest there's more to come. For example, the Model Y -- the company's most popular vehicle -- drove circles around the competition, becoming the world's best-selling car, according to online industry publication Motor1. In fact, Tesla was the first electric vehicle to ever top the list.
Tesla has consistently stated that its long-term goal is to increase vehicle production by a compound annual growth rate of 50%, but astute investors realize there will be ups and downs. Tesla's outlook for 2024 suggests it's in the down part of a cycle.
Management suggested that growth in 2024 "may be notably lower" than last year, saying that car sales are "currently between two major growth waves." The resulting shareholder defections sent the stock tumbling.
Despite the company's near-term prospects, Morgan Stanley analyst Adam Jonas continues to be Tesla's biggest cheerleader, assigning a Street-high price target of $345 while maintaining an overweight (buy) rating on the stock. This suggests potential gains for investors of 80%, compared to Friday's closing price. He wrote that Tesla's forecast included "almost no" new information and management wasn't clear concerning what "notably lower" implies.
In a separate note, Jonas cited a survey suggesting that Tesla bears outnumber bulls by two to one, which highlights the "seemingly overwhelming bearish institutional investor sentiment." He argues investors shouldn't view Tesla merely as a car company but as one with exposure to energy, AI, robotics, and more.
Given the company's success at revolutionizing the electric vehicle industry and track record of confounding critics, I think it would be foolhardy to count Tesla out now.
