There's strong evidence that one of the biggest contributors to the market's ongoing bull market rally is artificial intelligence (AI). The boom that began early last year has continued, though market watchers have been debating whether it could last. Results released today by one member of the auspicious collective known as the "Magnificent Seven" put the debate to rest, at least for the time being.
With that as a backdrop, social media maven Meta Platforms (NASDAQ: META) climbed 4.3%, e-commerce pioneer Amazon (NASDAQ: AMZN) rose 3.1%, and enterprise software giant Microsoft (NASDAQ: MSFT) climbed 1.9%, as of 1:24 p.m. ET. Meta closed at $486.13, up 3.87%; Amazon closed at $174.58, up 3.55%, and Microsoft closed at $411.65, up 2.35%.
The catalyst that seems to have sparked a rally among some members of the Magnificent Seven was a blockbuster earnings report from member Nvidia (NASDAQ: NVDA). The chipmaker arguably confirmed the coming AI boom when early last year the company reported record revenue in its data center segment, which includes processors used for AI. That trend has continued and Nvidia's fortunes, along with that of its shareholders, have risen with it.
For its fiscal 2024 fourth quarter (ended Jan 28.), Nvidia delivered revenue of $22.1 billion, surging 265% year over year, while climbing 22% sequentially. This boosted already strong profitability, with adjusted earnings per share of $5.16, which surged 486% and increased 28% quarter over quarter. This marks the third successive quarter that Nvidia has generated triple-digit year-over-year sales and profit growth.
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CEO Jensen Huang left no doubt as to what fueled the chart-topping results. "Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries, and nations," he said.
The Magnificent Seven were among Wall Street's top performers last year. The common thread that unites these industry leaders is their undeniable ties to AI. Since it was arguably the accelerating adoption of generative AI that helped spark last year's stock market rally, it isn't surprising these companies were among the top beneficiaries in 2023:
The widespread use of these advanced algorithms is expected to increase at a rapid clip over the next few years. Generative AI is expected to grow at a compound annual growth rate of 42%, topping $1.3 trillion by 2032, according to data provided by Bloomberg Intelligence. Given the magnitude of that opportunity, it's reasonable that the biggest players in the field will reap the biggest rewards -- but not all the Magnificent Seven stocks will benefit equally.
We're only just beginning to understand how pervasive generative AI will be, but the Magnificent Seven companies highlighted above have carved out lucrative niches for themselves in the AI revolution:
Each of these companies is approaching AI in a way that best serves its existing business, and each will likely continue to profit as these secular tailwinds gain momentum. Furthermore, the widespread use of AI has only just begun, so it follows that the gains will continue as adoption increases.
From a valuation standpoint, each of these stocks is relatively inexpensive, depending on your metric of choice. Meta and Microsoft currently sell for 24 and 32 times forward earnings, respectively, making them the clear favorites. Amazon currently sells for roughly 2 times forward sales, which makes it dirt-cheap. By most metrics, Nvidia appears expensive. However, on a forward price/earnings-to-growth (PEG) ratio basis -- which factors in expected growth -- Nvidia is valued at less than 1, the benchmark for an undervalued stock.
Whatever your favored metrics, there's a clear argument to be made that each of these stocks is not only inexpensive, but will continue to benefit from the tailwinds of AI.
Suzanne Frey, an executive at Alphabet, 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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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 Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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