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Since stock trading began, Nasdaq About 50 years ago, the index produced negative annual returns only 14 times. Over the past 20 years, this index has fallen by at least 30% in three of his lifetimes: 2002, 2008, and 2022.
Interestingly, the Nasdaq has risen several years in a row since then, following sharp declines in 2002 and 2008. Between 2003 and his 2007, Nasdaq’s annual return averaged 16%. And in 2009 and 2010, the index returned an average of 30%.
After a poor performance in 2022, the Nasdaq rebounded sharply in 2023, posting a 43% return. It is no exaggeration to say that the excitement surrounding artificial intelligence (AI) has had a major impact on the rise in high-tech stocks.
However, 2024 is off to a very tough start, and there could be more gains in store for investors. Each of the Magnificent Seven stocks below experienced AI-driven momentum last year, and we think they all still look attractive at the moment.
1. Amazon
Amazon (AMZN -0.83%) is best known for its e-commerce and cloud computing businesses. The past few years have been tough for Amazon. Abnormally high inflation and rising interest rates to curb that inflation are putting pressure on Amazon’s core business. Consumers are cutting back on discretionary spending, putting a strain on Amazon’s e-commerce efforts. Additionally, growth in the software business slowed significantly as companies tightened their budgets. This dynamic can be seen in the rise and fall of Amazon’s revenue and free cash flow generation below.
AMZN Earnings (Quarterly) Data by YCharts.
But Amazon made a series of smart moves throughout 2023 that could reignite growth. Among them, the company invested billions of dollars in OpenAI competitor Anthropic. As part of the agreement, Anthropic will train future generative AI models on Amazon Web Services (AWS).
Investors shouldn’t overlook the impact AI will have on Amazon. This technology should not only help drive new interest in AWS, but also help integrate it into Amazon’s e-commerce, streaming, logistics, and advertising businesses.
Amazon’s current price-to-sales (P/S) ratio of 3.1 looks like a bargain compared to historical levels. Now could be a great time to scoop up stock in this under-the-radar AI player.
2.Microsoft
microsoft (MSFT -0.71%) started the AI revolution with its investment in OpenAI, the developer of ChatGPT. Since pouring billions of dollars into the startup, Microsoft has quickly integrated ChatGPT across its Windows operating system.
Similar to Amazon, Microsoft’s Azure cloud platform offers the company’s most favorable growth prospects related to AI. What concerns me about Microsoft is its reputation.
MSFT PE Ratio (Forward) data by YCharts.
Microsoft’s forward price/earnings (P/E) ratio of 35.5x is expensive compared to its Magnificent Seven peers. While it’s reasonable to think that the expected impact of AI is probably factored into Microsoft’s stock price more than some of its peers, I don’t think the stock is grossly overvalued.
It’s clear that investors are focused on the biggest companies in the AI space, and Microsoft is no exception. Given that AI is in its early stages, I see Microsoft as being well-positioned for the long term. Despite premium valuations, now may be a good time to add stocks to your portfolio using dollar-cost averaging.
3. Alphabet
alphabet (GOOG 0.78%) (Google 0.77%) owns two of the world’s most visited websites: Google and YouTube. Given Alphabet’s overwhelming amount of real estate on the internet, it’s no surprise that advertisers want to be noticed on its platform.
But even though advertising has long been Alphabet’s main source of revenue, the company is in the midst of an identity crisis. Social media platforms such as TikTok, Instagram, and Facebook have grown in popularity over the past few years, especially among highly coveted demographics such as Gen Z and Millennials.
As a result, Alphabet’s stock has suffered as growth in Alphabet’s advertising business has begun to plateau and investor enthusiasm has begun to wane. Based on sales, Alphabet is the second cheapest stock among the Magnificent Seven.
MSFT PS ratio data by YCharts.
Despite this, I still think there are many reasons to own Alphabet stock. First, the company is rapidly gaining momentum in the cloud computing space. Even better, the cloud division continues to generate positive operating income, mitigating to some extent the slowdown in its core advertising business.
Additionally, the cloud is where Alphabet is really focusing its artificial intelligence efforts. So investors can actually buy into Alphabet’s AI business at a significant discount, even though the advertising business currently faces some challenges.
4. Metaplatform
meta platform (meta -1.22%) It owns social media apps Instagram, Facebook, and WhatsApp. Additionally, the company is advancing its Metaverse business through virtual reality (VR) and augmented reality (AR) hardware products.
However, the past few years have been tough for Meta. The company pivoted to an all-in approach to the metaverse several years ago. That initially drew praise, but investors quickly tarnished the company’s reputation following a series of weak earnings reports featuring slowing growth and mounting losses in its core advertising business.
Meta spent much of 2023 turning things around and returning focus to its core business.
META Revenue (Quarterly) Data by YCharts.
Sales and free cash flow are on the rise, and Meta appears to be climbing out of the hole. What’s even better is that Meta has found plenty of ways to reward shareholders in the wake of this new growth. Following its fourth-quarter earnings report earlier this year, Meta announced a $50 billion share buyback and the start of a quarterly dividend.
Given that artificial intelligence is likely to have a major impact on both Meta’s advertising and Metaverse businesses, the long-term effort may just be beginning for the social media conglomerate.
5. Nvidia
At the end of the list is Nvidia (NVDA -5.55%), developer of high-performance graphics processing units (GPUs). Don’t get me wrong. The AI story largely rests with Nvidia. As generative AI takes the world by storm, the company’s A100 and H100 GPUs are in high demand.
Nvidia’s biggest advantage is that AI touches almost every aspect of its business, from data centers to software development and more. What I find most appealing about Nvidia is that they are aggressively deploying their ever-growing profits. The company recently invested in his two budding areas of AI: voice recognition software and robotics.
NVDA earnings forecast data for the current year by YCharts.
The company’s market cap has increased by $1 trillion in less than a year, and I think this momentum will easily continue. Nvidia’s valuation seems justified given its robust outlook for the next few years. Now may be a great time to buy stocks to hold for the long term.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. 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. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Meta Platforms, Microsoft, and his Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
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