The "Magnificent Seven" is a prestigious group of technology stocks with a combined market capitalization of $13.3 trillion. These seven stocks delivered blockbuster gains in 2023 and were responsible for most of the upside in the benchmark S&P 500 index because of their sheer size.
The companies that make up the Magnificent Seven are:
- Nvidia (NVDA 6.18%)
- Meta Platforms (META 0.43%)
- Microsoft (MSFT 1.82%)
- Alphabet (Google) (GOOGL 10.22%) (GOOG 9.96%)
- Apple
- Amazon
- Tesla
A case can be made for owning a slice of all seven companies. However, some of the shine has come off the group as a whole in the early stages of 2024, particularly because Tesla stock has plunged 22% for the year already. Apple is also in the red so far. On the other hand, Amazon is having a great 2024 with an impressive 16% gain to date, although it has yet to reclaim its all-time high from 2021.
The other four stocks in the Magnificent Seven -- Nvidia, Meta Platforms, Microsoft, and Alphabet -- have each set a new record high this year. Momentum is a powerful thing in the stock market, and each of these four companies is underpinned by unique fundamental drivers that could lead to more gains going forward.
Here's why it's not too late to buy these four Magnificent Seven stocks.
1. Nvidia
Nvidia designed a series of data center chips capable of processing artificial intelligence (AI) workloads, and they have led to a staggering amount of revenue growth, the magnitude of which the average investor may never see again in their lifetime. It's the reason Nvidia stock surged 236% in 2023, and it has already logged a further 63% gain in 2024.
Nvidia's H100 graphics processing unit (GPU) is currently the industry leader, but the company is about to ramp up shipments of its new H200 GPU. It can inference (ingest live data to make predictions) at twice the speed of the H100, and it also consumes half the energy, so it will be far cheaper for data center operators to run. It's expected that existing Nvidia customers like Amazon, Microsoft, Google, and Meta Platforms will race to get their hands on as many H200 GPUs as possible.
Nvidia just reported its financial results for fiscal 2024 (ended Jan. 28). Its data center revenue surged by 217% year over year to $47.5 billion, which carried its total revenue to a record $60.9 billion. The company's earnings per share (profit) also exploded higher by 288% to $12.96.
Those growth rates are the reason Nvidia stock isn't necessarily expensive right now, even though it trades at a price-to-earnings (P/E) ratio of 60.8, which is almost twice the 34.1 P/E of the Nasdaq-100 index. Wall Street expects the company's earnings to come in at $22.09 in fiscal 2025, which would shrink its P/E to a more palatable 35.6.
The stock will probably also deserve a premium to the broader market by then based on the company's growth, which alone paves the way for more upside. In short, it's unlikely Nvidia stock has finished delivering gains.
2. Meta Platforms
Meta Platforms is the parent company of social networks Facebook, Instagram, and WhatsApp, which serve more than 3.1 billion people every single day. Its stock price is up 40% in 2024, and it has logged multiple all-time highs along the way. Meta is investing heavily in AI on a few different fronts, and the company has become one of Nvidia's largest customers.
Meta developed an open-source large language model (LLM) called Llama. LLMs are the foundation models that power AI software applications -- for example, OpenAI's GPT-4 LLMs power its ChatGPT platform. Llama is open source, unlike most other LLMs, which means it receives scrutiny from thousands of AI developers, who provide valuable feedback to Meta.
In other words, the open-source approach can accelerate the advancement of Llama for everyone, but especially Meta, which will use Llama to deliver a number of different AI applications. The company recently announced it will purchase 350,000 of Nvidia's H100 GPUs by the end of 2024, worth an estimated $9 billion. They will help Meta churn out new versions of its LLM more quickly. Llama 3 is currently in training, and will soon supersede the current Llama 2 model.
But AI is also helping Meta feed more relevant content to users on its social networks. AI curates 20% to 40% of the content users see on Facebook and Instagram, which drove an uptick in the amount of time they spent on those platforms last year. That creates more opportunities to serve users with ads, which leads to more revenue for Meta.
Like Nvidia, Meta stock remains relatively cheap despite trading at an all-time high. Its P/E ratio stands at 32.5 as of this writing, which is already a small discount to the 34.1 P/E ratio of Nasdaq-100 index. Wall Street expects Meta to deliver earnings growth of 23% in 2024, so the stock will soon look even cheaper.
3. Microsoft
Microsoft was one of the early movers when the AI frenzy kicked in at the start of 2023. All eyes were on OpenAI and its ChatGPT chatbot, and Microsoft swooped in with a $13 billion investment into that start-up, which laid the foundation for many of its AI initiatives. Microsoft stock is up 10% so far in 2024, though it's down fractionally from the record high it set in early February.
Microsoft has embedded AI into its entire product portfolio, including the Bing search engine and Edge internet browser. Its Copilot AI virtual assistant is also available to users of the 365 document suite (which includes applications like Word, Excel, and PowerPoint), and the Microsoft Power platform, which allows businesses to build websites and software without writing code.
The monetization opportunity is enormous. Microsoft says it has 400 million paid 365 users and all of them are candidates for the Copilot upgrade, which costs $30 per month. For context, the standard business 365 plan is $12.50 per month.
Microsoft's cloud platform for businesses, Azure, remains the fastest-growing piece of its entire organization. Over 53,000 businesses are accessing AI models and tools on Azure to accelerate their own development initiatives. In the recent fiscal 2024 second quarter (ended Dec. 31), Azure's revenue grew by 30% year over year, and Microsoft attributed six percentage points of that growth to AI specifically -- that was double the contribution AI made in the prior quarter just three months earlier.
Microsoft is arguably the most diverse AI story available to investors. It could be one of the greatest beneficiaries of widespread AI adoption, and for that reason, its stock will likely march higher.
4. Alphabet (Google)
Alphabet is home to Google, YouTube, and the Waymo self-driving company, among other brands. The company was perceived to be under attack last year because of Microsoft's OpenAI investment, as investors feared the new ChatGPT-powered Bing would steal some of the 91.4% market share held by Google in the internet search industry.
Those concerns have since faded because Alphabet launched a series of its own LLMs and AI applications to compete with ChatGPT. Its latest model (called Gemini) outperforms OpenAI's latest GPT-4 models across most multimodal benchmarks. In other words, Alphabet says Gemini is better at understanding and generating text, images, videos, and computer code.
Beyond AI, the reason Alphabet stock logged an all-time high this year is because its advertising business -- led by Google Search and YouTube -- is bouncing back. In the fourth quarter of 2023, Google Search delivered a record $48 billion in revenue, marking a 12.7% year-over-year increase. It was the fastest rate of growth since mid-2022. Similarly, YouTube's quarterly ad revenue growth accelerated to 15.5%.
Like Microsoft, Alphabet is also building a formidable presence in AI in the cloud. Google Cloud has designed its own data center chips in-house to create an edge against competitors that only offer chips from Nvidia. Plus, Google Cloud offers over 130 generative AI models -- including Gemini -- which developers can use to build their own AI applications.
Alphabet stock trades at a P/E ratio of 24.8 as of this writing. By that metric, it's the cheapest stock in the Magnificent Seven, which paves the way for more upside in its stock beyond its recent all-time high.
