2 Magnificent Seven stocks to buy in February

The return of “Magnificent Seven” stocks exceeded the return of growth-oriented stocks. Nasdaq Composite The group has returned 12.4% since the beginning of the year, nearly double the return of the Nasdaq. Round Hill Magnificent Seven ETF.

Among this elite group of tech stocks, Nvidia (NVDA -0.06%) and Amazon (AMZN -0.17%) has shown solid business growth, and there is still room for upside from recent highs. The reasons why these two Magnificent Seven stocks are still strong stocks are as follows.

Nvidia

Nvidia’s stock price has soared 239% in the past 12 months, making it one of the best stocks to capitalize on the growth of artificial intelligence (AI). The good news for investors who are late to the party is that that rapid growth may take a while. The stock remains attractively valued relative to its underlying business growth, and remains one of the best AI stocks to buy for several reasons.

One technique for reading end-market demand for a company’s products is to see what other companies with adjacent operations are reporting. super microcomputer makes plug-and-play rack systems for data centers that include GPUs from Nvidia.

Supermicro reported a 103% year-over-year increase in revenue in its most recent quarter due to increased demand for its AI rack solutions based on Nvidia’s H100 chips. This is a significant acceleration compared to Supermicro’s previous quarter and suggests demand for Nvidia’s chips is unabated.

Analysts are raising their annual revenue forecasts for Nvidia over the next few years, even though growth expectations for the GPU leader were already very high. Nvidia’s modest stock valuation also makes it an attractive stock to buy. It currently trades at 35 times next year’s consensus earnings estimates, which seems reasonable given NVIDIA’s solid growth.

We have $1 trillion worth of data center infrastructure to fuel Nvidia’s growth over time.

The advent of AI is forcing more companies to adopt faster computing and invest in GPUs, which is why Nvidia is experiencing such incredible growth. Given that the company generates his $32 billion in revenue from its data center division and has an estimated 80% market share in the AI ​​chip market, it is a lucrative market that could provide investors with further growth and returns. I’m in a position.

Amazon

Amazon is a very powerful company with multiple revenue streams that generate returns for shareholders, including cloud services, advertising, and online retail sales. Amazon Web Services, the company’s cloud division, is getting most of the attention on Wall Street, but it’s improving growth in the company’s e-commerce business that is driving the stock higher.

AI technology could make it easier for consumers to search the web and find the products they want at other retailers, which could hurt Amazon in the long run. Some might argue. However, this underestimates the human tendency to stick with trusted brands. Also overlooked are the investments Amazon is making in AI and infrastructure to improve its retail services.

As Amazon continues to improve its delivery speeds, it will be harder for competitors to catch up. In 2023, the company announced that it achieved the fastest delivery speed in its history, with more than 7 billion items delivered on the same or next day.

One of the benefits of faster delivery is that shopping behavior becomes more frequent. Amazon’s online sales growth accelerated every quarter last year, while cost reductions and inventory efficiency improvements also boosted the company’s profits.

AMZN Net Income (Quarterly) Data by YCharts.

AI will only further strengthen Amazon’s brand. Many customers almost default to Amazon.com instead of searching for products on Google. Amazon is looking to further its value proposition with the launch of Rufus, a new shopping assistant powered by generative AI.

Amazon’s increased delivery speeds and the opportunity to enhance the shopping experience with new AI tools will protect its competitive moat. Meanwhile, the company’s stock still trades at a fair valuation of about 3.1 times trailing earnings, which is within its 10-year trading range. This means the stock could deliver market-beating returns in the coming years as the company’s e-commerce business recovers.