Earlier this year, the S&P 500 confirmed its presence in a bull market as it soared to records, and a handful of stocks led the gains. I’m talking about a group known as “The Magnificent Seven,” a reference to the 1960 Western. In this case, though, these stars aren’t on the silver screen and, instead, are companies specializing in some form of technology. They are Amazon (NASDAQ: AMZN), Apple, Alphabet, Meta Platforms, Microsoft, Nvidia (NASDAQ: NVDA), and Tesla.
These companies also are big names in artificial intelligence (AI), one of today’s hottest growth areas, and that helped their shares climb last year. Each of these players still makes a solid long-term buy — even a stock like Tesla that’s recently slipped.
But two Magnificent Seven stocks — both key players in the world of AI — stand out as ones to buy right now, hand over fist.
1. Nvidia
Nvidia dominates the AI chip market, holding 80% share, as it sells the most powerful graphics processing units (GPUs) around. These high-performance chips fuel the crucial AI tasks of training and inferencing large language models (LLMs) so that the LLMs can go on to solve complex problems and more. Nvidia also sells a wide variety of products and services to help companies execute and maintain their AI projects — and customers can find all of these offerings conveniently on any public cloud.
All of this has translated into triple-digit earnings growth in recent quarters for this technology giant. Why am I optimistic this will continue? For two reasons.
First, the general AI growth story is in its early days right now, with companies’ AI needs in their early stages. Analysts predict the AI market will reach beyond $1 trillion by 2030. This suggests demand for Nvidia’s products and services could continue at the current rate or even significantly pick up over time.
Second, Nvidia is taking the necessary steps to stay ahead of rivals, putting its focus on innovation. The company has pledged to increase the power of its GPUs on an annual basis. Since Nvidia already is in the lead, it’s likely to maintain its dominance if it can keep this promise.
All of this makes the stock look like a reasonable buy today at 44x forward earnings estimates.
2. Amazon
Amazon is benefiting from AI in two ways. The e-commerce giant uses AI to help improve efficiency across its business. For example, it uses the technology to streamline the fulfillment process and choose the best delivery routes, which eventually saves the company time and money. Amazon also uses AI to help you, the customer, find what you’re looking for — something that may keep you coming back.
But the area where Amazon may score the biggest AI win is in cloud computing. Amazon Web Services (AWS) is the world’s biggest cloud provider and also drives Amazon’s overall profit. So success here is critical for the company.
AWS has gone all in on AI, offering services that suit just about any AI customer. It sells premium chips, like those from Nvidia, along with its own less-expensive chips for the cost-conscious customer. It also offers a fully managed service that gives customers access to a range of LLMs. AWS also builds applications such as a coding assistant for developers.
These efforts already are delivering results, with AWS announcing a $100 billion annual revenue run rate this year. Amazon isn’t only investing in AI — more importantly, it’s in the process of monetizing it.
Today, at 41x forward earnings estimates, Amazon is far from being the cheapest Magnificent Seven stock, but that’s OK. The company’s solid earnings track record, leadership in the growth businesses of e-commerce and cloud computing, and its approach to AI make it well worth the price.
Should you invest $1,000 in Nvidia right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. Adria Cimino has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
Here Are My Top 2 Magnificent Seven Stocks to Buy Hand Over Fist was originally published by The Motley Fool
Source: finance.yahoo.com