When 2023 dawned, the Magnificent 7 stocks, including the tech behemoths that shaped the S&P 500, dominated the financial landscape, propelling the index to a staggering 24% gain. Without these tech giants, the S&P 500 would have delivered a mere 8% return, underscoring their unparalleled influence. Thanks to the index’s market cap-weighted construction, every uptick in these seven companies sent ripples across the index, magnifying their effect. Last year, their collective weight in the S&P 500 surged to 29%, a historical high. If the index had been evenly weighted, it would have posted a modest 12% return, highlighting the dominance of these titans.
Fast forward to the present, as we approach the conclusion of the first quarter of 2024, is the aura of invincibility still shrouding these Magnificent 7 stocks? More crucially, after a year of meteoric gains, are they still an attractive proposition for investors? Let’s delve into each company to unravel the current scenario.
Assessing Apple’s (AAPL) Ascendancy
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Apple (NASDAQ:AAPL) has embarked on a more sluggish trajectory this year compared to its sprint last year. Twelve months ago, AAPL stock surged by 22%, culminating in a remarkable 48% surge by year-end. But now, it finds itself in a downward spiral, down by over 11%, pressured by waning sales and a dearth of pioneering products that captivate the masses.
The iPhone, which makes up 52% of Apple’s revenue, witnessed a 3% decline in sales last year. Anticipation surrounds the next iPhone iteration integrating artificial intelligence (AI) features, but the specifics of these functionalities remain shrouded in mystery. Notably, Apple outsourced its AI development to a third party, eschewing an in-house solution.
While the Vision Pro mixed reality headset generated significant buzz upon release, its hefty $3,500 price tag curtails its mass appeal. Presently, Apple’s growth engine is its suite of services, encompassing iCloud, Pay, Card, TV+, Fitness+, and Music. In 2023, service revenue climbed by 9% to a substantial $82.5 billion, emerging as the second-largest revenue stream following the iPhone. However, revenue growth in this segment has slackened, advancing by just 14% in 2022.
Despite its lofty valuation – trading at 27 times earnings, more than double its sales and 25 times its free cash flow – Apple might lag behind the S&P 500 this year due to a dearth of catalysts.
Navigating Amazon’s (AMZN) Ascendancy
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Amazon (NASDAQ:AMZN) has outshined Apple, with its shares gaining 17% year-to-date, surpassing last year’s 9% upswing at the same juncture, which ultimately led to an 80% surge in 2023. The e-commerce titan appears poised for even greater heights this year.
Financial pundits foresee Amazon’s earnings catapulting by 175% in the first quarter, with an annual growth rate of 45%. The e-commerce segment rebounded to profitability last year, with strong sales in domestic and international markets. Furthermore, Amazon’s cloud services division continues to witness robust double-digit growth, cementing its position as the profit hub. Although growth has decelerated compared to previous years, Amazon Web Services remains the leader in cloud infrastructure.
Digital advertising is slated to become a pivotal revenue stream for Amazon in the coming years, with analysts projecting a 15% market share by 2025.
Despite Amazon’s lofty valuation eclipsing Apple’s, the company exhibits growth across various sectors. AMZN stock seems poised to outpace the broader market index in the current year.
Unveiling Alphabet’s (GOOG)(GOOGL) Trajectory
No company is without its trials, and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is no exception. While the journey ahead may be fraught with challenges, it holds the promise of unparalleled innovation and growth. As each company navigates the intricate web of market dynamics, investors await eagerly to witness the ultimate victors emerge from this tumultuous clash of titans.
The Rise of Tech Giants in 2024
Alphabet’s Dominance and Cash Generation
Alphabet remains a cash-producing machine, churning out $70 billion in free cash flow last year. With over $110 billion in liquid assets on its balance sheet, Alphabet’s decision to use cash for stock buybacks over dividends may soon shift. As tech companies gravitate towards rewarding shareholders with dividends, Alphabet is poised to follow suit.
Alphabet’s Advertising Power
While Amazon advances in digital advertising, Alphabet reigns as the industry giant. From Google to YouTube, Gmail, and Google Cloud, Alphabet’s online advertising empire stands unmatched. With nearly $225 billion in ad revenue last year, accounting for 80% of its total revenue, Alphabet outshines 93% of S&P 500 companies by market valuation. As ad spending is forecasted to surpass $1 trillion in 2024, Google is set to seize the lion’s share.
AI as Alphabet’s Next Frontier
AI emerges as Alphabet’s potential growth driver, despite Google Gemini’s initial setbacks. Positioned within Apple’s iPhone AI interface, Alphabet is still navigating the early stages of an evolving industry. These developments suggest that GOOG stock is poised to outperform the index this year.
Meta Platforms’ Growth and Stability
Meta Platforms has evolved into a well-oiled machine with a 44% surge in META stock value this year, mirroring last year’s pace. While it tripled in value in 2023, sustaining such growth rates in 2024 may be challenging. Meta Platforms, home to Facebook, Instagram, and WhatsApp, boasts nearly 4 billion active monthly users, driving $135 billion in ad revenue. Despite metaverse investments, META’s financial prudence has led to the initiation of dividends, a sign of steadfast financial health.
Microsoft’s AI Ventures and Cybersecurity Innovations
Microsoft’s partnership with OpenAI has catapulted it into a key player in the AI realm, integrating generative AI across its suite of services. The introduction of Copilot for Security signifies Microsoft’s foray into AI-driven cybersecurity, revolutionizing pricing models in the sector. Priced at $4 per “security compute unit,” this innovative approach offers scalable security solutions, propelling Microsoft’s $20 billion annual cybersecurity revenue to new heights and boosting MSFT stock performance.
Unveiling the Titans: Nvidia and Tesla in the Financial Arena
Nvidia (NVDA)
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If AI were a raging river, Nvidia (NASDAQ:NVDA) would be the majestic waterfall that captures all attention. From a modest $364 billion market valuation in 2022, this chipmaker has ascended to a dazzling $2.4 trillion fortress, a 555% surge heralding a dominion in the realm of artificial intelligence.
Forecasts from Wall Street anticipate NVDA stock’s earnings to catapult by a remarkable 476% in the first quarter, promising a spectacle that might leave stockholders mesmerized. While the full-year projections hint at a less exuberant doubling of profits, the narrative of Nvidia’s financial saga in 2024 appears front-loaded with prosperity.
Amidst the voracious appetite for AI accelerators saturating data centers and beyond, Nvidia stands as the paragon of power. The advent of Blackwell, the newest chip in their arsenal, signals a move towards unprecedented prowess. Notably, Microsoft’s Azure cloud, a behemoth unto itself, has embraced Blackwell for generative AI tasks, pointing towards a union of giants reshaping the digital cosmos.
Yet, as the sun sets on Nvidia’s towering valuation, questions loom like distant thunderclouds over a verdant valley. NVDA stock, while bedecked in a cloak of daring growth narratives, carries a burden: priced for a future where free cash flow ascends at a dizzying 57% annual pace over the next decade. A feat of Herculean proportions, beckoning skepticism. While realism tempers lofty dreams, the promise of Nvidia outshining the S&P 500 this season lingers like the warm glow of twilight.
Tesla (TSLA)
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Lastly emerges Tesla (NASDAQ:TSLA), the enigmatic persona of the Magnificent 7 ensemble. Cast into the elite circle, the electric vehicle (EV) maven experienced a meteoric rise before the fates shifted course. TSLA stock, once poised atop the summit, found itself on a slow descent, shedding 38% of its lofty gains amidst industry ebbs.
Projections whisper of a gloomy first quarter, with earnings expected to shrink by 12% and a precipitous 27% plunge for the annual tally. While Tesla stands perilously close to the edge of viability in the eyes of Wall Street sages, hope flickers like a lone beacon in the dusk. Amidst the shifting winds of fortune, Tesla’s colossal stature in the EV landscape endures, with the heralded Model Y commanding adoration amongst the masses.
As Tesla readies to unveil a new, more affordable EV model, the journey towards redemption beckons. While challenges may shadow its race to outpace the S&P 500 this year, TSLA stock emerges as the sleeper champion, poised to defy the odds and captivate the discerning eyes of the financial pantheon.
