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Growth is impossible these days without AI. I’m kidding, of course, but there’s at least some truth to this tongue-in-cheek statement.
AI provided a huge tailwind for top growth stocks last year. Collectively, these rising stocks are known as the Magnificent Seven: Google’s parent company. alphabet, Amazon, apple, meta platform, microsoft, Nvidia (NASDAQ:NVDA)and tesla. Some of them will continue their momentum into 2024.
However, these stocks have different levels of greatness. Which Magnificent Seven stocks are poised for the most impressive growth? Here are the sure-fire winners, at least over the next few years.
“A turning point in a new computing era”
All stocks in the Magnificent Seven have potentially very long-term prospects. Alphabet, Amazon, and Microsoft should see significant growth as organizations move to the cloud to run AI apps. Apple has opportunities in augmented reality, services, and more. Tesla, Nvidia, Alphabet’s Waymo unit, Amazon’s Zoox, and potentially Apple could all stand to make big profits in the future from the advent of self-driving cars.
But one company stands out above the rest. Nvidia made this fact abundantly clear in its latest quarterly update. While impressive numbers, these weren’t exactly his Nvidia Q4 numbers. Instead, it’s what company executives have said about the future.
Nvidia CFO Colette Kress set the tone at the beginning of the fourth quarter conference call by saying, “The world has reached a tipping point in a new era of computing.” She explained that this new era is due to the rapid shift to accelerated computing needed to power what Nvidia calls “AI factories,” data centers built specifically for AI systems. did.
Indeed, the rest of the Magnificent Seven could also benefit from this new era of computing. But almost all of them use his Nvidia graphics processing unit (GPU). The only way for them to succeed in this new era, at least for now, is to foster Nvidia’s success.
In his comments, Cress revealed the names of the other six members of the Magnificent Seven. He noted that cloud providers such as Microsoft generated more than half of Nvidia’s data center revenue in the fourth quarter.
She said Nvidia is working with multiple leaders in large-scale language models (LLM), including Google and Microsoft (along with Microsoft partner OpenAI). Kress said Meta’s use of AI (powered by Nvidia GPUs) contributed to the revenue increase in the latest quarter. She mentioned Amazon’s recent announcement that it will use Nvidia DGX Cloud for its Amazon Web Services cloud platform. Although Kress did not mention Tesla by name, she noted that Tesla is working to help multiple companies use AI in autonomous driving.
How much growth can Nvidia realistically achieve?
Nvidia expects revenue to be $24 billion in the first quarter of fiscal 2025. This amount reflects 234% year-over-year growth and nearly 9% quarter-over-quarter growth. But how much growth can Nvidia realistically achieve going forward?
Like most companies, Nvidia doesn’t provide details about its long-term outlook. However, CEO Jensen Huang said on the fourth quarter conference call:[F]Fundamentally, conditions are excellent for continued growth over the next 24 to 25 years and beyond. He cited two major trends as reasons for his optimism.
First, Huang agreed with Kress’ comments about the move to accelerated computing. This opportunity alone is huge. Kress said the current installed base value of data center infrastructure is approximately $1 trillion. And most, if not all, of that is rapidly moving to accelerated computing.
The second trend Huang mentioned is generative AI. He claimed that “a whole new industry is being formed” thanks to generative AI, adding that it is driving his Nvidia’s growth.
Huang believes these two trends will double the global installed base of data center infrastructure over the next five years. He predicted the annual market opportunity from this explosion would be in the “hundreds of billions” of dollars. No company is currently better positioned to take advantage of this opportunity than Nvidia.
What gets in the way?
Of course, it’s also possible that Huang and Kress are looking at Nvidia’s future through rose-tinted glasses and are being too optimistic about the future. If accelerated computing and generative AI don’t provide the tailwinds expected, Nvidia’s growth won’t be as strong as expected.
Nvidia’s success has also sparked competition. Advanced Micro DevicesFor example, the company claims its latest AI chips are as good as Nvidia’s. Mehta, a member of the “Magnificent Seven,” and Microsoft are two of his biggest customers who plan to use AMD’s chips to reduce dependence on NVIDIA. Some of Nvidia’s biggest customers are also developing their own AI chips.
Before Nvidia’s Q4 results were a disaster. JP Morgan Chase Analysts warned that supply could eventually outstrip demand. Kress said on his quarterly conference call that despite the increase in supply, demand still exceeds supply. However, that may change in the future.
Finally, while Nvidia may be able to deliver significant revenue growth that appears to be on the horizon, the stock is still underperforming. how? Nvidia’s stock price already has incredible growth built into it.
Still, the future looks very bright for Nvidia at the moment. Arguably the best of the Magnificent Seven.
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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. Keith Speights has held positions at Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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.
Which ‘Magnificent Seven’ stocks are poised for the most impressive growth? Here are our hands-down winners.Originally published by The Motley Fool
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