Last year was a big moment for the stocks dubbed the "Magnificent Seven" -- a reference to the 1960 Western movie -- as they soared in the double and triple digits. These companies, technology-industry giants, also are leaders in their specialty areas -- from Internet search to electric vehicles (EVs). They are Amazon (AMZN 0.75%), Apple, Alphabet, Meta Platforms (META -2.41%), Microsoft (MSFT -1.00%), Nvidia (NVDA 0.03%), and Tesla.
Investors flocked to these growth players as they began to position themselves for a recovering market and economy. Growth stocks generally benefit from this sort of environment, and on top of that, these innovative companies offer exposure to high-potential areas -- such as artificial intelligence (AI) -- that could supercharge revenue in the coming years.
This year, though, the Magnificent Seven have lost some of their steam. Certain players have fallen behind when it comes to stock performance, and Tesla and Apple shares have even declined in the double digits. But four continue to roar higher, suggesting they may take over and lead gains in the S&P 500. Will the "Fab Four" reign in 2024? Let's find out.
Image source: Getty Images.
Double-digit gains
So first, let's identify these four flourishing stocks. They are, in order of performance starting from the best: Nvidia, Meta, Amazon, and Microsoft, and they've each climbed in the double digits since the beginning of the year.
They are among the five most heavily weighted stocks in the S&P 500, so if they gain, they could take the index along with them. This means you could benefit by investing directly in these stocks or by taking a position in a fund that tracks the index's performance, such as the SPDR S&P 500 ETF Trust.
But could these stocks keep on climbing, or will they lose momentum like some of their Magnificent Seven peers? To answer the question, it's important to consider why the Magnificent Seven stocks advanced last year. As I mentioned, investors sought out growth stocks, especially those linked to hot technologies, and AI emerged more and more as the technology to favor. The AI market is forecast to reach more than $1 trillion by the end of the decade, and the technology may transform a variety of industries.
While all seven companies are investing in the area and could become AI winners, the Fab Four are particularly strong.
Nvidia's AI chip leadership
Nvidia dominates the AI chip market, holding 80% share, and thanks to that reported triple-digit earnings gains in the most recent quarter, reaching record levels. The company also is investing in research and development and just announced the upcoming release of the new Blackwell architecture and its most powerful chip ever. So, there's reason to be confident about Nvidia's growth ahead.
Meta says AI will be its biggest investment area this year, and the company aims to bring on board 600,000 graphics processing units (GPUs), a massive amount of computer power to advance its AI projects.
Amazon is using AI to cut costs and boost earnings at its e-commerce business, and the company is selling AI tools to others through its cloud unit -- Amazon Web Services (AWS) -- to help customers benefit from AI too.
Finally, Microsoft got in on AI early in the game, investing $1 billion in OpenAI, the creator of chatbot ChatGPT, back in 2019. Microsoft has become OpenAI's exclusive cloud provider and reportedly increased its investment to $13 billion. On top of this, the software giant has integrated AI across its own platforms and sees it as "the defining technology of our time."
A look at valuation
All of this means, as investors continue to seek out potential AI winners, they might favor these companies that already have demonstrated their AI strengths and offer bright future prospects. A look at valuation shows they remain reasonably priced for growth stocks, especially considering their track record of profitability and revenue gains.
AMZN PE Ratio (Forward) data by YCharts.
And this translates into a buying opportunity for investors looking to get in on companies that could lead the AI revolution.
Of course, it's impossible to predict with 100% accuracy what the market will do in the short term. But it's fair to say the Fab Four at least have what it takes to continue gaining and potentially reign this year. Even more importantly, though, these technology giants, thanks to their many years of earnings growth, solid market positions, and future prospects, could win over time -- and that's great news for long-term investors.
