The term “magnificent 7 stocks” refers to leading tech firms that are propping up the market as AI mania holds strong. The group of ultra-high market capitalization companies continues to receive strong capital investment on those AI tailwinds and forward hopes.
Bullish investors are likely to continue to pile money into those shares. The overarching thesis is that we are only in the early stages: The best is yet to come. More bearish investors will note that this looks a bit like a mini bubble. The Nasdaq-100 is clearly leading the overall market. It comprises the 100 largest tech stocks and jumped 3% in late May while the Dow Jones Industrial Average was negative.
That might not sound important, but it is only the fifth time that has occurred since the dot-com bubble burst decades ago. That leaves questions for investors wondering what 2024 might look like.
Apple (AAPL)
Investors should hold Apple (NASDAQ:AAPL) stock now. Because despite the strengths that it has shown, AAPL shares are now as high as they were at the height of the pandemic. Investors are going to be increasingly interested in valuation and valuation-related metrics throughout June.
And on that front, it’s difficult to find a reason to buy Apple right now. What I mean is Apple’s an expensive stock. You simply need to look at its current P/E ratio in order to understand that truth. AAPL’s P/E ratio is above 30x now. Over the past 10 years, it has had a median of just under 17x.
That would suggest share prices are destined to come down, right?
Yes, but I think Apple won’t see an outflow of capital because it was such a strong performer relative to other Big Tech stocks in 2022. So, I would hold Apple for that reason and also for the reason that it isn’t deeply connected to AI. So, if investors decide that the AI slant is overdone, they could reasonably decide to shift that capital into AAPL which has been a bastion of safety in big tech.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock has looked threatened at times in 2023. That’s especially true in relation to AI. When ChatGPT began to gain traction early in the year, a narrative emerged that it posed a real threat to Google’s search dominance. The idea was that a Bing integration could help it gain market share in search directly at Google’s expense.
That fear has died down some as Google has taken up the slack recently. It is no longer seen as a laggard in the AI realm. Google’s second-round AI introduction went much smoother than the first round. That has changed perceptions overall and Google is again seen as being a legitimate contender.
That makes it a buy before 2024 because if really positive AI news emerges from Google, shares will pop. Further, Google is growing, albeit slower than the company is used to growing. The firm is expected to grow by approximately 6% in 2023 by revenue. That’s slower than 2022, but AI could change that rapidly.
Given that Google is so powerful and resource-rich it’s reasonable to expect it could make AI progress rapidly.
Amazon (AMZN)
There are a lot of numbers suggesting Amazon (NASDAQ:AMZN) stock offers a lot of value right now. It’s really a case of understanding that value given the post-pandemic hangover. All Big Tech is facing a slowdown relative to the pandemic boom. That continues to rattle investors who grew accustomed to super-fast growth.
In Amazon’s case, the hangover isn’t particularly bad at all. Sales increased by 9% in Q1. That 9% number is important. We’ll get back to it in a second. But what’s also important is that Amazon posted $3.2 billion in net income in the first quarter. That was a drastic turnaround from the $3.8 billion loss a year earlier.
Back to the point about 9%. Amazon is expected to grow by 9% this year after growing by 9% in Q1. Overall e-cmmerce growth is also expected to be 9% in 2023. The point here is that Amazon will continue to grow and expand its dominance over e-commerce at a rate in line with overall sector growth. That isn’t necessarily a great signal but it at least shows that Amazon is steady.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) stock should continue to offer upside even though it is currently nearly fully priced. The reason to believe that is a combination of valuation, profitability, and growth.
Microsoft shares carry a reputation for being overpriced. But MSFT stock’s price-to-earnings ratio is actually only higher than 60% of industry-wide competitors. Yet Microsoft offers net margins and returns on assets and equity that are higher than 95% of competitors. It’s a behemoth with a lot of sway ability to utilize its scale to drive extreme profits.
The valuation, therefore, isn’t really that high at all. Instead, you could easily argue that Microsoft is undervalued. Microsoft is highly profitable, sure. It also has tremendous growth ahead if the AI boom proves to be fruitful. So far, that looks to be the case. AI has disruptive potential that on the order of few other technological advances perhaps in history. It could be that important. Microsoft has invested heavily and that investment should benefit it as well as cloud AI that will push revenues through its Azure business.
Meta Platforms (META)
I don’t see much rationale behind the rapid increase in Meta Platforms (NASDAQ:META) stock this year. It has more than doubled since the beginning of 2023, growing from $124 to $275 at the time of writing.
Yes, Meta Platforms’ sales increased in the first quarter stopping a series of losses. That’s a positive, but it doesn’t justify META stock more than doubling. What I see is a company that is basically flat overall but continuing to lean heavily into VR and the metaverse. And that is costing it money even as VR bets don’t look particularly compelling.
Meta continues to spend heavily and iterate on its Quest Pro VR headset. The Meta Quest Pro 3 will debut this fall. It’s facing declining prices for VR headsets overall and increased competition in the space. Reality Labs lost $4 billion in the first quarter. The rebranding still looks like a disaster. It has undoubtedly cost many jobs and has turned Facebook into something that may in time amount to another expensive passing fad.
Nvidia (NVDA)
Currently, just about every narrative about Nvidia (NASDAQ:NVDA) stock centers on AI and valuation. The AI boom has benefited no company more than Nvidia. It forecast $11 billion in revenues for the current quarter recently. That was much higher than the $7.2 billion Wall Street was previously expecting. It would also be a new record for the company previously best known for GPUs.
That news sent shares from $305 to $400 nearly overnight vaulting Nvidia above a $1 trillion valuation. It is the first chip stock to reach that milestone. But those extreme values are also raising concerns. NVDA stock now carries its highest P/E ratio ever, which is among the highest of the notoriously pricey tech stocks.
I don’t think investors are going to bail on Nvidia before there’s more clarity around Q2 sales. Nvidia’s sky-high valuation doesn’t matter now. Yes, some investors are selling to lock in massive gains. That’s a fine strategy. But does that also suggest that NVDA shares will fall? No, it doesn’t. Nvidia’s chips fuel the AI boom. They’re difficult to source. It’s a recipe for further growth even as share prices seem impossibly high.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock is a hold in my view. The company is dealing with flagging demand and built-up inventory. The natural solution is to therefore reduce prices and reduce those inventory levels.
That has resulted in bigger discounts for many rear-wheel-drive Model 3 vehicles while discounts on AWD vehicles remain lower. In any case, the result of that decision has meant decreasing margins for Tesla. The company missed earnings and suffered a decline in earnings overall. Margins got tighter.
For more risk-seeking investors it might make sense to charge in as Tesla lowers prices. It could reasonably increase its market share as a result if buyers respond positively. I would hold shares right now if you have a position.
Wall Street believes TSLA shares are overpriced. Yet, metrics-driven website GuruFocus sees shares as having the potential to double. It’s difficult to see a reason to believe either side is definitely correct so I’d hold tight.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.