The “Magnificent Seven” include Apple, Microsoft, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), Amazon, Nvidia (NASDAQ: NVDA), Meta Platforms, and Tesla. They earned that moniker because of their incredible valuations and far-reaching impact on different areas of the technology sector, and they have delivered incredible returns over the last year.
Crucially, each of these companies also has big advantages in artificial intelligence (AI) and massive opportunities to benefit from it over the long term. But while each of the Magnificent Seven should benefit from some AI-related performance catalysts, some will necessarily perform better than others.
If you’re looking for top ways to benefit from the AI revolution, read on to see why two Motley Fool contributors identified Nvidia and Alphabet as the best Magnificent Seven stocks to buy for 2024 and beyond.
Incredible momentum and massive opportunities
Keith Noonan (Nvidia): With gains of roughly 238% over the last year, Nvidia has performed better than any other Magnificent Seven stock — and there are good reasons to think that its incredible run will continue. Demand for Nvidia’s high-end graphics processing units (GPUs) has soared in tandem with demand for AI services. Thanks to this catalyst, the company’s sales and earnings have shot through the roof.
In the third quarter, the chipmaker posted sales of $18.12 billion, up 206% year over year. Meanwhile, adjusted earnings per share soared 593% compared to the prior-year period.
The company even expects sales growth to accelerate significantly in the fourth quarter. With guidance for sales of roughly $20 billion in the period, management’s target calls for year-over-year growth of roughly 230%. And the GPU leader has crushed its own guidance and Wall Street’s performance targets over the last year.
The business has gone from being centered around GPUs for the consumer markets to focusing on processors for data centers used by large organizations. Data center hardware will likely remain the key foundation of its business, but the AI leader might be in the early stages of a new transformation.
Nvidia already has the foundations to be the most important hardware provider for enterprise AI applications, but it’s moving to bolster its own recurring-revenue base with subscription services. It’s rolling out new AI-focused software and offering computations for AI apps as a service.
As the company increases the software and services component of its business, it should see strong sales and margin tailwinds. These new growth drivers and its already stellar performance make Nvidia stock still look like a great buy in 2024.
Magnificent, to be sure
Parkev Tatevosian (Alphabet): My top Magnificent Seven stock for 2024 is Google parent Alphabet, which has an excellent business model that generates billions in revenue and profits, and sells at a relatively cheap valuation.
Indeed, Alphabet’s sales expanded from $56 billion in 2013 to $283 billion in 2022. The company generates revenue primarily from advertising and has benefited as marketers have been transitioning their ads to digital channels.
Legacy ads were hard to target with any precision, and exact measurements of results were nearly impossible with billboards, newspapers, and magazines. (How many people saw your billboard on Sunset Boulevard? Who knows?)
But online, businesses can target their ads more precisely and see how many people clicked on their messages and made a purchase.
The business has been lucrative. Alphabet’s operating income soared from $15 billion to $75 billion in the years shown above. The industry is unlikely to reverse course, which could lead to growing profitability for Alphabet for several years. Although it’s unlikely to grow at the rate it achieved in the previous decade.
Still, that could already be reflected in Alphabet’s attractive valuation. The stock trades at a forward price-to-earnings ratio of 17.6, a bargain given the company’s dominant position in a lucrative industry.
Should you invest $1,000 in Nvidia right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. Parkev Tatevosian, CFA has positions in Alphabet and Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
The 2 Best “Magnificent Seven” Artificial Intelligence Stocks to Buy in 2024 was originally published by The Motley Fool