Here are my top Magnificent Seven stocks to buy and hold for the next 10 years

There are good reasons why many investors are interested in Magnificent Seven stocks, beyond last year’s outstanding returns. This elite group of high-tech companies has strong brands, a growing customer base, and is a highly profitable business, everything investors look for in a solid investment.

last year, Round Hill Magnificent Seven ETF returns 51%; Nasdaq Composite32% of S&P500The return is 23%. There is debate over how long this group will continue to outperform in the short term. On a price-earnings ratio (P/E) basis, most of these stocks trade at a significant premium to the average price of the major indexes.

The most expensive of the seven is Nvidia (NVDA -0.12%)Despite the high valuation, the company’s excellent growth and future opportunities could justify even higher prices in the coming years. This is why this stock remains a core part of my portfolio.

Nvidia’s growth runway

Nvidia is benefiting from data centers switching from central processing units (CPUs) to far more powerful graphics processing units (GPUs) for artificial intelligence (AI) workloads. Previously, data centers were spending about $250 billion a year on infrastructure, but this amount is increasing for the first time in many years, and this could be just the beginning of a major spending boom.

The market for Nvidia products has turned out to be much larger than originally thought a few years ago. His fourth-quarter fiscal year sales increased 265% year-over-year to $22 billion, significantly outpacing the growth of other Magnificent Seven companies.

Data by YCharts. YoY = year-on-year change.

Nvidia has just scratched the surface of this opportunity. Company executives say their $1 trillion worth of data center infrastructure is starting to adopt accelerated computing (running multiple GPUs simultaneously to process large data workloads). Told.

However, the opportunities could be even greater. As Colette Kress, Nvidia’s chief financial officer, said in a recent talk, AI is enabling companies to use data in ways that weren’t possible before. morgan stanley Technology conference.

Because of this, a new type of data center has emerged: a GPU-focused cloud service provider. This is one reason why NVIDIA executives think the actual data center infrastructure market is worth he he says could be close to $2 trillion.

Why buy stocks?

AI is completely upending traditional computing, and this is reflected in the accelerating demand for Nvidia’s H100 GPUs. It has almost become a bragging right for companies to talk about how many of his H100s they have purchased.Magnificent Seven members meta platform says it plans to have 350,000 H100s in service by the end of the year.

Demand for Nvidia’s H200 GPUs is already outpacing supply, and the company is on track to start shipping in the second quarter of its fiscal year. The company’s guidance calls for fiscal first-quarter revenue to increase 234% year-over-year.

Over the long term, analysts expect Nvidia to grow revenue by 35% annually, which is higher than the rest of the Magnificent Seven.

Data by YCharts. LT = long term.

Nvidia’s top share in the GPU market should lead to further growth as data centers continue to upgrade their components for AI. As this opportunity unfolds, this GPU stock could have more long-term upside potential than the rest of the Magnificent Seven over the next decade. Compared to this year’s expected earnings, Nvidia’s stock price is not that expensive, trading at a forward P/E ratio of 37 times.

Nvidia has been the king of GPUs for years, essentially offering the right product at the right time to benefit from the AI ​​boom. But for me, what ultimately decides the deal is how much cash the business is generating.

The company’s free cash flow totaled $27 billion, a 10-fold increase over the past five years. This gives the company significant resources to stay ahead of the curve with his GPU innovations and generate shareholder returns for years to come.