Meta and Nvidia Lead 'Magnificent Seven' in AI Innovation and Market Performance

2 "Magnificent Seven" Stocks to Buy Hand Over Fist in October | The Motley Fool

Investors are eagerly awaiting a fresh round of earnings reports from the world's largest technology companies. The term "Magnificent Seven" was coined by Wall Street last year to describe a powerful group of technology companies with a combined market capitalization of $15.7 trillion. The seven companies are: So far in 2024, these Magnificent Seven stocks delivered an average return of 40%, which is double the 20% gain in the S&P 500 index. That's a key reason investors watch them so closely. Corporate America is heading into a new earnings season for the quarter ended Sept. 30, which will give investors a fresh look at the financial performance of their favorite companies. Microsoft and Meta Platforms are due to release their results at the end of October, and here's why it might be a good idea to buy shares in these two Magnificent Seven right now. Few companies are better positioned to profit from the artificial intelligence (AI) revolution than Microsoft. The company invested $1 billion in ChatGPT creator OpenAI back in 2019 and followed that up with a new $10 billion partnership with the start-up early last year. Microsoft has used OpenAI's latest AI models to create the Copilot virtual assistant, and it also offers those models to businesses on its Azure cloud platform. Copilot is capable of answering complex questions and generating text content, images, and even computer code with a simple prompt. It's now embedded in many of Microsoft's flagship software products, such as Windows, Bing, and Edge. For an additional monthly subscription fee, it's also available in 365, which includes Word, Excel, and PowerPoint. During Microsoft's fiscal 2024 fourth quarter (ended June 30), the number of corporate customers who purchased over 10,000 Copilot add-ons for their 365 subscriptions doubled from just three months earlier. Since there are more than 400 million paid 365 seats in the corporate sector worldwide, Copilot could become a substantial source of revenue if even a fraction of them sign up. Investors should watch for further updates on that front in the upcoming quarterly report. But the Azure cloud platform will probably headline the report once again because it's consistently the fastest-growing segment of Microsoft's entire organization. Azure's revenue increased by 29% year over year during the last quarter, and eight percentage points of that growth came from its AI services -- that number increased eightfold from one percentage point in the year-ago period. Those services include providing data center computing capacity for AI developers and access to the latest large language models (LLMs), like OpenAI's GPT-4. Microsoft stock is currently down 12.4% from its all-time high. It's trading at a price-to-earnings (P/E) ratio of 34.7 as of this writing, which is a premium to the 31.7 P/E ratio of the Nasdaq-100 technology index. In other words, Microsoft stock looks slightly expensive relative to its big tech peers. However, investors will be hard-pressed to find another company capable of monetizing AI through both consumers and businesses at such a large scale. Therefore, buying Microsoft stock at a discount to its all-time high might be a great move ahead of its upcoming earnings report, which should feature several AI updates. Meta Platforms stock has been on a tear since hitting its bear-market bottom in October 2022. It's up by a whopping 544% since then, and the company's earnings have been a key part of that story. Meta CEO Mark Zuckerberg dubbed 2023 the "year of efficiency" and proceeded to slash costs across the entire company, driving a surge in its profitability, and that momentum carried into 2024. Despite Meta spending heavily on AI infrastructure recently, it still managed to generate $13.4 billion in net income during the second quarter of 2024, a 73% increase from the same quarter last year. That propelled the company's trailing-12-month earnings per share to $19.59 -- an eye-popping 128% higher than in the prior 12 months. Wall Street expects Meta's upcoming third-quarter earnings per share to come in at $5.21, representing 18.6% year-over-year growth. The decelerating increase implies a focus on sustainable profitability without compromising important capital expenditures on its critical AI initiatives. To date, Meta has launched a number of AI features for users and advertisers on its social networks, Facebook, Instagram, and WhatsApp. The Meta AI virtual assistant is accessible across all the company's apps. It's capable of answering complex questions, settling debates in your group chat, offering gift ideas, and even generating images. It lays the foundation for Meta's upcoming Business AI tools, which will include virtual agents to handle customer queries around the clock without human intervention. Meta believes every business will eventually have a unique AI agent, which could unlock new revenue streams for the tech giant. Meta's AI features are powered by Llama, the LLM it developed in-house. The company is currently developing Llama 4, which is the latest version due for release next year. Zuckerberg thinks it will be so advanced that it could set the benchmark for the entire AI industry. Reaching that point won't be cheap, though, with Meta planning to spend up to $40 billion on AI data center infrastructure this year and even more next year, which could impact its earnings. With that said, Meta stock is trading at a P/E ratio of 30.3 right now, so it's still cheaper than the Nasdaq-100 index despite its spectacular gain since 2022. That presents a great setup for investors heading into an exciting earnings report, which should reveal more information about the company's AI opportunities and growth trajectory.

2 "Magnificent Seven" Stocks to Buy Before They Soar as Much as 71% According to Select Wall Street Analysts | The Motley Fool

After notching triple-digit gains over the past year, these tech stalwarts are still worth a look. The rise to prominence of artificial intelligence (AI) since early last year has been nothing short of phenomenal. The potential applications for generative AI continue to grow by leaps and bounds, and it has become clear that the companies at the cutting edge of this technology stand to profit from early adoption. Leading the pack are the so-called "Magnificent Seven" group of stocks, which have outpaced the broader market by a wide margin since the advent of AI at the start of last year (in order by returns, as of this writing): To put those gains in the context of the overall market, the S&P 500 has increased 49% during that time, so the difference is stark. It should come as no surprise that each of these companies is a leader in AI adoption and development. What is surprising is that a growing chorus on Wall Street -- which seldom agrees on anything -- is almost universal in its support of several of these stocks. And despite triple-digit gains, two of them still have a fair degree of upside ahead, according to select Wall Street analysts. The first stock with plenty of upside potential is Meta Platforms. The social media specialist has lately turned its gaze on the vast potential of generative AI, but the company has a long history of developing and deploying state-of-the-art algorithms. Meta has a treasure trove of user data from its multiple social media sites, which supplies the information necessary to develop its own large language models -- which form the foundation of generative AI. While the company doesn't have a cloud infrastructure service of its own to monetize its LLaMA AI, Meta hawks its AI models on the cloud platforms of its rivals -- for a fee. The company makes the lion's share of its revenue from the advertising that appears on its social media platforms. To that end, Meta has also developed a suite of tools to help those advertisers succeed, helping secure its share of those ad dollars. Despite notching stock price gains of 379% since early last year (as of this writing), Wall Street remains firmly behind Meta. Just last week, Rosenblatt Securities analyst Barton Crockett assigned a Street-high price target of $811 and a buy rating on the shares. This represents potential upside of 41% compared to Tuesday's closing price. Crockett believes that Meta's unrivaled spending on virtual reality, augmented reality, and the Metaverse is a strength rather than a weakness. It gives the company "an ability to make effective price/performance choices." He notes that Meta "is uniquely delivering category products that could be described as leading in consumer adoption." He's also impressed with Meta's latest advances in AI. The analyst isn't the only one bullish on Meta. Of the 64 analysts who covered the stock in June, 56 rated it a buy or strong buy, and none recommended selling. Furthermore, Meta is selling for just 29 times earnings, a discount to the multiple of 30 for the S&P 500. Meta boasts more than 3.2 billion users that visit its social media platforms every day, giving the company a steady of ongoing stream of relevant data. It's the world's second-largest digital advertiser, which provides the company with plenty of cash flow to pursue its AI ambitions. Add in the opportunity represented by AI, and it's no wonder Wall Street is enamored with Meta. The second Magnificent Seven stock with a boatload of potential is Nvidia. The chip specialist has been one of the biggest early beneficiaries of the AI revolution as its graphics processing units (GPUs) make the technology possible. Nvidia's processors have long been the gold standard for video games, cloud computing, data centers, and other forms of AI. The dawn of generative AI in early 2023 have resulting in triple-digit gains in its revenue, earnings, and stock price. It's easy to understand why. Nvidia is the undisputed leader in the discrete desktop GPU space, controlling 88% of the market, according to data compiled by Jon Peddie Research. The company also continues to dominate the data center GPU market, with a mind-boggling 98% of the market last year, according to semiconductor analyst firm TechInsights. If that weren't enough, Nvidia dominates the market for machine learning -- an earlier branch of AI -- with 95% of that market, according to business analytics company CB Insights. This helps to illustrate that when it comes to the data center and AI market, Nvidia is the undisputed leader. Despite stock price gains of roughly 700% since the start of last year (as of this writing), Wall Street is still rallying around Nvidia. Rosenblatt analyst Hans Mosesmann maintains a buy rating and Street-high price target of $200 on the stock. This represents potential upside of 71% compared to Tuesday's closing price. Mosesmann believes the chipmaker's software -- which complements and accelerates its industry-leading processors -- doesn't get enough credit. "We anticipate this software aspect will significantly increase in the next decade in terms of overall sales mix, with an upward bias to valuation due to sustainability," Mosesmann wrote. The analyst isn't the only one bullish on Nvidia. Of the 60 analysts who offered an opinion on the stock in September, 55 rated the stock a buy or strong buy, and none recommended selling. While some investors might be leery of Nvidia's valuation, that view is myopic. For Nvidia's fiscal 2026, which begins in February, analysts' consensus estimates are calling for earnings per share of $4.02. With a current share price of $117, that works out to roughly 29 times forward earnings, cheaper than the current multiple of 30 for the S&P 500. Given the company's industry dominance and cutting edge technology, I think it's clearly a bargain.

Looking to invest in the 'Magnificent Seven'? Dan Niles reveals the 2 he likes

Hedge fund manager Dan Niles is particularly bullish on one tech stock going in to 2025. That stock is Meta Platforms -- the tech giant behind social media platforms Facebook and Instagram as well as instant messaging app WhatsApp. Niles, who runs an actively managed fund of 20 to 40 large-cap U.S. stocks at Niles Investment Management , highlighted that the company has been using artificial intelligence effectively in their internal platforms. For instance, the company is able to preempt the kind of videos and advertisements a user would like to see, through AI algorithms, he explained. "That's generating much better revenues and profitability for the company ... They beat revenues, they beat EPS (earnings per share) for the June quarter," Niles told CNBC's "Squawk Box Asia" on Oct. 3. His comments come as Meta's second-quarter results surpassed Wall Street's expectations with earnings per share coming in at $5.16 -- compared to $4.73 expected -- while revenue was $39.07 billion, vs. $38.31 billion penciled. The tech giant has provided revenue guidance of $38.5 billion to $41 billion for the third quarter. Shares in Meta have had a bumpy ride over the past few days but remain up 63% year-to-date. META YTD mountain Year-to-date shares in Meta Platforms Meta is among the so-called "Magnificent Seven" stocks that several investors have been looking at favorably this year. The other stocks on the list are Alphabet , Amazon , Apple , Microsoft , Nvidia and Tesla . Meta's "really the one that's using AI the best internally," Niles noted. The veteran investor described his investment style as one seeking "growth at a reasonable price" while also wanting "to see a return on AI." He expects the tech giant to benefit from the upcoming "highly contested" U.S. presidential elections in November, which will see "a lot of ad dollars being spent." "Here's the really nice thing, you can get it for much more than a market multiple and that's much better better than market growth and for a company that's using AI the best. And so that's why, for me, I like Meta looking into next year as well, because of all those different factors, reasonable valuation, good growth and an AI play," Niles added. Of 69 analysts covering the stock, 59 give it a buy or overweight rating, eight have a hold call and two have either an underweight or sell rating, according to FactSet data. The stock's average price target of $588.61 gives it upside potential of 2.8%. 'Premium name' In addition to Meta, Niles is also keeping a watch on chipmaker Nvidia . This artificial intelligence darling continues to make headlines, with the stock up nearly 140% over the year. NVDA YTD mountain Year-to-date shares in Nvidia Calling it a "premium name," Niles said "nobody is even close to not only the chips they provide by the bigger thing which people don't spend enough time on [which] is software." He is particularly positive of the potential of CUDA -- a programming language for graphic processing units developed by Nvidia -- which is further adding to its dominance of the AI chip market. Nvidia's CEO Jensen Huang has "done a masterful job of getting [CUDA] into things like universities and just getting everybody, all the engineers, used to using that, and as an ex-engineer myself, once you get used to something, you don't want to switch," Niles said. "You combine that with the fact that they have the best hardware on the planet, they're in the pole position for a very, very long time, and I think it's hard for anybody to displace them." According to FactSet data, of the 65 analysts covering the stock, 60 give it a buy or overweight rating, while just five have a hold rating. Analysts' average price target is $149.54, giving it 25.%8 potential upside.