The Magnificent Seven: Which Tech Stocks to Buy and Avoid in 2024
A closer look at the performance and prospects of the top mega-cap tech stocks
Investors who had exposure to the “Magnificent Seven” tech stocks in 2023 enjoyed significant success. This group, consisting of Nvidia, Amazon, Tesla, Apple, Microsoft, Meta Platforms, and Alphabet, outperformed the broader market despite the Nasdaq Composite surging over 45% last year. However, as we enter 2024, it’s crucial to assess which of these stocks are still worth buying and which may run out of steam. In this article, we analyze the four stocks worth considering and the three to leave behind in the year ahead.
Nvidia: Buy
Nvidia’s dominance in the artificial intelligence (AI) chip market has propelled its revenue growth to new heights, with a 200% year-over-year increase in its most recent quarter. With AI demand expected to continue growing, analysts project a 42% annual earnings growth for Nvidia. Despite its significant climb in 2023, Nvidia’s attractive valuation at 40 times 2023 profits, with a PEG ratio of just 1, suggests it remains an appealing investment.
Apple: Avoid
While Apple has experienced periods of growth driven by key iPhone releases, its revenue has fallen over the past year, and net income has only increased by 1%. Analysts have lowered their growth expectations for Apple, and with a PEG ratio over 3 at more than 29 times 2023 earnings, buying Apple at its current price may not be wise. Investors should wait for a more favorable valuation before considering this stock.
Meta Platforms: Buy
After facing challenges in 2022, including a slowing advertising business and privacy changes to iPhones, Meta Platforms, formerly known as Facebook, rebounded under CEO Mark Zuckerberg’s leadership. The stock’s attractive valuation at just 25 times 2023 earnings, combined with an expected annual growth of 20%, suggests there is still room for growth in 2024 and beyond. Meta Platforms’ renewed focus on its core business and the potential of its metaverse projects make it an intriguing investment.
Microsoft: Avoid
Microsoft’s recent partnership with OpenAI and its positioning in the AI and cloud computing sectors have boosted analyst expectations for its earnings growth. However, with a market cap of $2.8 trillion and a forward P/E over 33, Microsoft’s PEG ratio over 2 raises concerns about its valuation. After a 57% surge in 2023, investors may find better deals elsewhere. Being selective when considering Microsoft as an investment is advisable.
Amazon: Buy
Amazon’s e-commerce and cloud leadership, coupled with its ongoing investments in AI technology, make it an attractive stock. While its PEG ratio is similar to Microsoft’s at just over 2, Amazon’s true profit potential may be understated due to its reinvestment of profits into the business. With e-commerce still having room to grow, Amazon’s long-term prospects remain promising. Investors should consider buying Amazon at its current valuation.
Tesla: Avoid
Tesla’s strategy of cutting prices to boost unit sales has had short-term consequences for its operating results. While the company aims to realize cost savings through increased sales volume, analysts have lowered their expectations for Tesla’s future earnings growth. With a PEG ratio over 4, the stock appears more expensive after its 130% surge in 2023. It may be prudent for investors to wait for concrete evidence of Tesla’s price-cutting strategy paying off before considering an investment.
Alphabet: Buy
Despite Google and YouTube’s dominance, Alphabet’s behind-the-scenes AI potential should not be overlooked. The company’s focus on maximizing advertising spend on its platforms, coupled with its massive user data, positions Alphabet as a reliable revenue generator. With analysts expecting earnings to compound at over 17% annually, Alphabet’s valuation, with a PEG ratio of 1.4, remains attractive for long-term investors.
Conclusion:
As the new year begins, investors should carefully evaluate their tech stock portfolios. While Nvidia, Meta Platforms, Amazon, and Alphabet offer compelling growth prospects at reasonable valuations, caution is advised when considering Apple, Microsoft, and Tesla. By staying informed and making informed investment decisions, investors can navigate the ever-changing landscape of the tech sector and position themselves for success in 2024 and beyond.