Investing Insights: Why the Magnificent Seven Tech Stocks Shine Bright

The term “Magnificent Seven” was coined by Wall Street last year to describe a powerful group of technology companies with a combined market capitalization of $15.7 trillion. The seven companies are:

1. Microsoft (NASDAQ: MSFT)
2. Meta Platforms (NASDAQ: META)
3. Nvidia
4. Apple
5. Amazon
6. Alphabet
7. Tesla

So far in 2024, these Magnificent Seven stocks have shown an impressive average return of 40%, which is double the 20% gain in the S&P 500 index. This performance is a key reason investors keep a close eye on them.

Earnings Season Approaches for Corporate America

Corporate America is heading into a new earnings season for the quarter ending September 30. This will offer investors a fresh look at the financial performance of their favorite companies. Microsoft and Meta Platforms are set to release their results at the end of October, making now a potentially good time to consider investing in these two Magnificent Seven stocks.

1. Microsoft

Microsoft is well-positioned to benefit from the artificial intelligence (AI) revolution. The company invested $1 billion in ChatGPT creator OpenAI back in 2019, followed by a $10 billion partnership early last year. This has allowed Microsoft to develop the Copilot virtual assistant, which uses OpenAI’s latest AI technologies.

Copilot can answer complex questions and generate content, images, and even computer code from simple prompts. It is now integrated into many of Microsoft’s software products, including Windows and 365, which features Word and Excel for an additional monthly fee.

In Microsoft’s fiscal 2024 fourth quarter, the number of companies purchasing over 10,000 Copilot add-ons for their 365 subscriptions doubled from the previous quarter. Given the 400 million paid 365 seats in the corporate sector, Copilot could become a significant revenue stream.

Additionally, its Azure cloud platform continues to lead in growth, rising 29% year over year in the last quarter. Remarkably, eight percentage points of that growth came from AI services, indicating strong demand for data center computing and access to tools like OpenAI’s GPT-4.

Currently, Microsoft stock is down 12.4% from its all-time high, trading at a price-to-earnings (P/E) ratio of 34.7, above the Nasdaq-100 technology index’s P/E of 31.7. Although this suggests Microsoft is slightly more expensive than its peers, few companies can monetize AI as effectively. Thus, buying at this moment might be advantageous leading into the earnings report, which is expected to provide key AI updates.

2. Meta Platforms

Meta Platforms has seen a remarkable turnaround since reaching a low in October 2022. The stock is up 544%, driven largely by a focus on improving profitability under CEO Mark Zuckerberg’s “year of efficiency” plan.

Despite recent significant investments in AI, Meta generated $13.4 billion in net income in Q2 2024, a 73% increase from the same quarter last year. This boosted the trailing-12-month earnings per share to $19.59, reflecting a 128% increase year-over-year.

For its upcoming third-quarter earnings, Wall Street predicts earnings per share will reach $5.21, marking 18.6% growth compared to the previous year. This slower-paced growth indicates a desire for sustainable profitability while continuing to invest in crucial AI initiatives.

Meta’s AI features available across its social platforms like Facebook and Instagram are designed to enhance user experience. This will extend to new AI-driven business tools, allowing companies to utilize virtual assistants to manage customer interactions automatically.

Meta employs its own language model, Llama, with plans to release Llama 4 next year. The company expects substantial improvements, though costs associated with this development could impact profits. Currently, Meta’s stock trades at a P/E of 30.3, remaining cheaper than the Nasdaq-100 index despite its gains.

Consider These Potential Investment Opportunities

Investors often feel they missed opportunities with successful stocks; however, this may not be the case.

Occasionally, our analysts issue a “Double Down” recommendation for companies poised for growth. If you’re concerned about missing your chance to invest in these tech giants, now could be an ideal moment to buy before prices rise further. The investment numbers illustrate the potential:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,855!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,423!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $392,297!*

Currently, we are issuing alerts for three extraordinary companies, presenting you with a valuable opportunity.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.