Less than three months into 2024, the usual suspects are lifting the stock market higher. The so-called "Magnificent Seven" (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla) remain some of the hottest stocks on Wall Street.
But investors want to know which of these stocks, if any, remain screaming buys. Here are the two that I believe still have plenty of gas left in the tank.
Image source: Getty Images.
1. Amazon
Topping my list is Amazon. Shares of the e-commerce leader are up 88% over the last 12 months, helping founder Jeff Bezos climb back atop the list of richest Americans.
But what puts Amazon at the top of my list isn't its recent performance -- it's the company's long-term prospects.
As the world's top cloud services provider, Amazon Web Services (AWS) stands to reap enormous benefits from the artificial intelligence (AI) revolution. That's because developers will look to AWS for support, guidance, and infrastructure to scale their AI-powered applications.
Simply put, hyperscalers like Amazon, Microsoft, Alphabet, and Meta Platforms own a significant portion of data centers globally, with some estimates putting the figure at 40% of overall capacity.
Financially, the effects of the AI revolution are already evident. In Amazon's most recent quarter (the three months ending on Dec. 31, 2023), the company reported AWS revenue of $24.2 billion, which was up 13% from a year earlier.
Amazon's new generative AI assistants like Q (a chatbot for businesses) and Rufus (an online shopping assistant) represent opportunities for Amazon to have its own ChatGPT moment. And, with 500 million Alexa-enabled devices already sold, Amazon already has a hardware foothold in many households. It simply needs the software buzz to truly capture the moment.
In any event, Amazon's combination of fantastic leadership, outstanding financials, and leading market share in cloud services make it a screaming buy in my book.
2. Nvidia
Yes, Nvidia is still a screaming buy, too. I know that might be hard to believe, with shares recently up an astounding 600% in only 18 months.
However, just like how the result of one coin flip doesn't impact the outcome of the following one, Nvidia's unbelievable last 18 months say nothing about where the stock is headed. In a nutshell, past performance doesn't imply future returns.
There is, however, one interesting trend that potential investors should keep in mind: That's the company's valuation. And contrary to what you might think, Nvidia's shares keep getting cheaper -- not more expensive.
In fact, as you can see in the chart below, Nvidia's forward price-to-earnings (P/E) ratio has decreased by more than 50% over the last three years.
NVDA PE ratio (forward) data by YCharts.
And P/E ratios are volatile because they're based on either trailing earnings or future earnings estimates -- meaning they often soar or collapse around earnings announcements, as you can see in the chart above.
At any rate, Nvidia's forward P/E ratio has significantly dropped because analysts expect the company to score from rising sales of its graphics processing units (GPUs), which are used to power many of today's cutting-edge AI applications.
In summary, investors shouldn't shy away from Nvidia just because its stock has been on a tear. To the contrary, Nvidia's future looks bright thanks to the skyrocketing demand for AI chips. Granted, its not a stock for every investor. But for those who are willing to buy and hold, Nvidia could still be a screaming buy right now.
