of S&P500 It continues to rise further in the first three months of 2024, thanks in part to the continued outperformance of the Magnificent Seven.
The seven monster stocks accounted for nearly all of the S&P 500’s strong performance in the first half of 2023, and have continued to rise as a group since then. Although not all members of the group achieved victory in his 2024 market, such members – Nvidia (NASDAQ:NVDA) and meta platform — Significantly higher. apple and tesla It is the only member that lags significantly behind the broader index.
The Magnificent Seven’s performance since the beginning of 2023 has been impressive, but any good investor knows that past performance is not indicative of future results. Investors need to decide whether today’s stock price justifies the potential future profits from the business. That’s where one of the Magnificent Seven’s girlfriends seems particularly appealing, and another member seems overpriced.
Magnificent Seven Stocks Should Buy Hand Over Fist Now
Among this elite group of stocks, the most attractive prices for long-term investors are: alphabet (NASDAQ:GOOG) (NASDAQ:Google). Alphabet is the company behind Google, which captured a 92% share of the global online search market last month. This kind of reach would be the envy of just about any ad-supported internet service, but Google can turn the dial a little more with ancillary services. This counts his nine separate products with over 1 billion users. This provides us with a large amount of data about our user base, which we can use to customize our advertising products and increase our prices compared to other companies.
Among these nine products with over 1 billion users is the Android operating system. The mobile OS holds a commanding global market share, still supporting nearly half of all smartphones in the United States, where Apple’s iPhone is particularly popular. By owning the mobile platform of most smartphones used around the world, Google’s position in mobile search is solidified. Regulatory challenges to agreement with Apple.
Google’s strong position in search led to an 11% increase in advertising revenue in 2023. But Alphabet has several other growth drivers. The company’s public cloud computing service, Google Cloud, has been growing rapidly, increasing by 26% last year. Additionally, Alphabet’s other betting segment includes several promising companies, such as its self-driving car company Waymo. If any of these moonshots are successful, it could represent a multibillion-dollar opportunity for Alphabet and its investors.
Alphabet is well-positioned for consistent revenue and profit growth for years to come. Meanwhile, the stock is trading at a forward P/E ratio of 22.4 times. That’s a bit expensive compared to the S&P 500 index, but still cheap compared to the other high-priced stocks in the Magnificent Seven.
With steady revenue growth and profit expansion, plus the potential for moonshot gains, Alphabet looks like the best stock to buy among the tech giants.
Magnificent Seven Strains to Avoid Like the Plague
If there’s one stock in the “Magnificent Seven” that I can’t get into, it’s Nvidia. Despite the company’s strong performance, the stock price appears to be significantly higher than actual results. Additionally, the outlook for this business doesn’t seem as strong as it has been recently.
Nvidia’s performance has been driven by its data center business in recent years, largely due to the boom in artificial intelligence’s large-scale language models (LLMs). Nvidia’s graphics processing units are suitable for LLM training. The company’s chips are higher performing and more power efficient than off-the-shelf solutions from other companies, and have been able to maintain a long-term lead over competitors. As a result, data center revenue increased from $3 billion in 2020 to $15 billion in 2023 and $47.5 billion in 2024.
Not only did Nvidia’s revenue soar, but so did its profits. Gross profit margin expanded from 63% in the fourth quarter of last year to 76% this year. Similarly, over the past year, operating expenses remained largely unchanged relative to revenue, demonstrating incredible operating leverage.
However, there are important factors that led to such results. It’s a supply constraint. According to Nvidia’s manufacturing partners, these supply constraints could ease by the end of 2024. taiwan semiconductor manufacturing. At that point, gross margins will decline and Nvidia will need to sell more chips to maintain revenue growth.
Meanwhile, competitors are beginning to bring viable alternatives to Nvidia’s GPUs to market. Not only that, but some of Magnificent Seven’s largest customers, large technology companies, have designed their own chips to train LLMs. Additionally, demand should shift from GPUs needed to train LLMs to chips needed to run AI applications on devices. As a result, demand for Nvidia’s chips may not be able to sustain current levels.
You don’t need an advanced economics degree to understand that increased supply and decreased demand means lower prices. Nvidia is certainly performing well despite the pressure, but the company’s stock is priced in such a way that the company continues to pay top dollar for as many chips as his Nvidia can produce.
The stock is currently trading at around 39 times forward earnings. But with margins under pressure as demand levels normalize, it will be difficult for Nvidia to continue to grow earnings at a level that makes its high multiple worthwhile for long-term investors.
Should you invest $1,000 in Alphabet right now?
Before buying Alphabet stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks Investors can buy now…and Alphabet wasn’t one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
stock advisor We provide investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks every month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.
*Stock Advisor returns as of March 25, 2024
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Adam Levy He has worked for Alphabet, Apple, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has Disclosure policy.
One ‘Magnificent Seven’ stock to buy more than your fist, the other to avoid like the plague. Originally published by The Motley Fool
