Recent months have seen increased volatility in the stock markets, as both the S&P 500 and the NASDAQ have given back some of the gains they posted earlier in the year. Stocks are coming under pressure from a variety of headwinds – but one that stands out recently comes from the bond market.
Treasury bond yields and stocks tend to move in opposite directions, and earlier today the 10-year treasury bond rose to a peak of 5.02%, its highest level since July 2007. The yield was as low as 3.3% as recently as this past April, and has been rising steadily ever since.
Contrarian market expert Jim Cramer has been watching current conditions, and he sees the ‘Magnificent Seven,’ the seven largest stocks in the S&P 500, as the ultimate defensive plays in this environment.
“We’re in an unusual situation, but skyrocketing bond yields are bad news for the vast bulk of the market. The mega-cap techs are the one big exception. You want to make it through this difficult moment? You need the Magnificent Seven, and then the rest,” Cramer opined.
With this in mind, we used the TipRanks database to pull up the details on two of these ‘Magnificent Seven’ stocks to find out what makes them compelling buys. According to the platform, both have received plenty of love from Wall Street analysts, earning a ‘Strong Buy’ consensus rating and are projected to have up to 155% upside potential for the year ahead.
Nvidia Corporation (NVDA)
We’ll start with the semiconductor chip giant Nvidia. This is a well-known name, a leader in the chip markets whose products, particularly the high-end GPUs, are in high demand for AI applications, data centers, and high-end gaming. Since last November when ChatGPT woke everyone up to the potentialities of AI, Nvidia has seen that demand rise and continue to rise; the stock is up an impressive 194% since the beginning of this year, and Nvidia boasts a market cap of $1.06 trillion.
The company’s success has been powered by strong growth in its AI-related products. Nvidia has, since 2020, been a leader in the supply of GPU chips to OpenAI, the Microsoft-supported firm behind ChatGPT. OpenAI, already a heavy buyer of Nvidia chips, has said it will require as many as 10,000 new GPU chips heading into 2024, in order to maintain the chatbot’s performance parameters. Having a ready customer with high demand has given a boost to Nvidia’s revenues and earnings in recent months.
That can be readily seen in the chip company’s most recent quarterly earnings report, from fiscal 2Q24. For that quarter, Nvidia reported $13.5 billion in quarterly revenue – a result that was a company record, a 101% year-over-year gain, and was $2.43 billion ahead of the forecasts. The company’s bottom line, reported in non-GAAP measures, came to $2.70 per diluted share, beating the estimates by 61 cents per share. The results were driven by solid performance in the AI-adjacent data center segment, which was up 171% y/y to reach $10.32 billion in total revenue.
The Street’s analysts are anticipating more gains for Nvidia next month when it reports its fiscal Q3 earnings. The forecast for revenue is $15.89 billion, and the outlook for the non-GAAP EPS is $3.36 per share.
For 5-star analyst Hans Mosesmann, from Rosenblatt Securities, the company’s AI and data center exposure are key supports. He writes of the stock, “NVDA remains our top conviction idea… With data center and AI inferencing opportunities massive and most of the $1 trillion server market shifting to accelerated computing, NVDA is poised for multi-year growth as supply expands. New platforms like Hopper, L40S, and Grace-Hopper will drive further inflections… NVDA’s unmatched software capabilities and exposure to secular AI and data center tailwinds reinforce its position as a top secular grower even amidst competition.”
For Mosesmann, this adds up to a Buy rating on the share, and his Street-high $1,100 price target implies that a robust one-year gain of ~155% lies on the horizon for Nvidia. (To watch Mosesmann’s track record, click here)
Overall, the Strong Buy consensus on NVDA is based on 38 recent analyst reviews – and they are nearly unanimous, with 37 Buys against a single Hold. The shares have a selling price of $429.75 and their average price target, at $645.53, suggests a 12-month upside potential of 50%. (See Nvidia stock forecast)
Amazon (AMZN)
The next mega-cap tech firm we’ll look at is Amazon, one of the world’s truly iconic brands. Amazon’s ubiquitous smile logo has become synonymous with rapid delivery, as the company has cemented its position over the past decade as the world leader in e-commerce and online retail. Amazon survived the dot.com bubble more than 20 years ago and has built on that, remaking itself as the one-stop-shop for everything online. Today, Amazon boasts a market cap of $1.29 trillion, and its online retail activity saw approximately $690 billion in gross merchandise volume last year.
Amazon’s online retail service may be the 800-pound gorilla in the room, but the company’s other divisions give it a depth and breadth that can insulate the company from most shocks. Amazon Web Services is a major player in the cloud computing world, and the company’s AI-powered technology products show tremendous promise; these include AWS, which the company is working to integrate with AI, and other AI products include a software code development tool, an image-building platform, and a chatbot. Amazon clearly has the resources to develop all of these avenues simultaneously; the company’s cash holdings may have declined by 8% from the end of 2022 to the end of 2Q23, but it still had $49.5 billion in liquid assets on hand at the end of Q2.
In other Q2 metrics, Amazon reported sky-high revenue of $134.4 billion, a figure that was up 11% year over year and came in $3 billion better than expectations. The firm’s bottom line, at 65 cents per share, was 31 cents ahead of estimates. Amazon’s Q2 earnings showed a benefit from a non-operating expense gain in the company’s Rivian equity holdings, where the prior year’s equivalent figure had been a loss of $3.9 billion.
Amazon will report its Q3 results later this week, and analysts are looking to see a 59-cent EPS based on $141.6 billion in revenues.
Among the bulls is Evercore analyst Greg Melich who believes that Amazon is a go-to story for investors, and outlines why: “We are keeping AMZN on our Tactical Outperform list, and AMZN remains our #2 pick among Large Cap ‘Nets… We believe the AMZN Long Thesis is very well intact. AMZN still faces several very large $T TAMs; benefits from a very positive mix shift to faster growth/higher margin AWS and Ads revenue streams; has very strong competitive positions in Retail, Cloud & Advertising; has a very powerful business model in terms of Growth & FCF generation; and has a very competent management team. Among our coverage space, AMZN is arguably the strongest, most successfully diversified company.”
To this end, Melich rates AMZN an Outperform (i.e. Buy), with a $190 price target that indicates his confidence in a 50% potential gain heading into next year. (To watch Melich’s track record, click here)
Overall, this behemoth of a company has picked up no fewer than 42 recent analyst reviews; their lopsided 41 to 1 split in favor of Buys over Holds gives AMZN its Strong Buy consensus rating. The shares have an average price target of $175.38, implying an upside of ~38%. (See Amazon stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Source: finance.yahoo.com