The group of companies known as the Magnificent Seven set the market on fire in 2023, rising 111% on average. All of them handily outperformed the bull market returns of the index. This year is shaping up a little different.
Although we’re only a month or so into 2024, many of the seven technology stocks are off to a much slower start. They’re up an average of 10.5% so far. That might not seem so bad since we’re just six weeks into the new year but some are doing poorly. Tesla (NASDAQ:TSLA) for example, is gapping down 22% while Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) lags with just a 6% gain.
It will be a different outcome for the tech giants this year. So, the following three Magnificent 7 stocks are the only ones you should consider buying.
Apple (AAPL)
Apple (NASDAQ:AAPL) is one of the stocks stumbling out of the gate with shares down 2% to start. While AAPL stock was the worst performer last year at a 48% gain — all of our stocks should have such a “bad” showing — this time around, Apple is heading in the wrong direction.
Parts of its business are cyclical or at least associated with changing consumer preferences. Much of Apple’s performance is tied to the iPhone and the overall mobile device upgrade cycle. There were signs last year the business was slowing again.
Also, the consumer products giant is reliant upon China for much of its supply chain, and it was late to artificial intelligence (AI). In fact, Apple might not have an effective response to all the generative AI developments until next year.
What AAPL stock does have going for it is a tightly woven fabric of hardware, software, and services that feed into one another in a virtuous circle of growing sales and profits. Increasingly pulling more of its chip development in-house, Apple can also react more quickly to product innovation needs, the AI lapse notwithstanding. And, the tech stock is a cash-generating machine. It has nearly $62 billion in cash and equivalents in the bank and produced more than $106 billion in free cash flow (FCF) over the last 12 months.
Further, Apple richly rewards shareholders with dividends and stock buybacks. That makes it a great Magnificent 7 stock to own today and hold onto in the future.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is up 12% in 2024 after turning in solid Q2 results that improved on the top and bottom lines. And unlike Apple, it did not miss the AI boat but rather was helping to row it forward.
The software giant infused all of its product offerings with the latest iteration of OpenAI’s generative AI ChatGPT. Now called Copilot, Bing search is now more relevant even if it hasn’t chipped away much at Google’s lead. Data from StatCounter indicates Google search still has a 91% share while Bing inched forward half a percentage point. In fact, cloud services are seeing big gains.
Microsoft put AI into its Azure platform and supercharged growth. Revenue on the platform surged 24% year over year (YOY) to hit $33 billion in Q2. Notably, six points of that growth were attributed to Azure’s AI services. The cloud business grew to 53,000 customers, more than one-third of whom came to Microsoft over the past year.
Copilot is everywhere at Microsoft and in everything, pushing total quarterly revenue 18% higher to $62 billion. That’s amazing for a company with a $3.1 trillion market capitalization. Also, MSFT investors benefit from an aggressive policy of returning capital to shareholders. Microsoft reported $8.4 billion in dividend payments and stock buybacks in Q2. That’s a return of value any investor can appreciate.
Nvidia (NVDA)
The granddaddy of AI stocks has to be Nvidia (NASDAQ:NVDA). At the very least, the chipmaker has become the face of AI. It was the leading Magnificent 7 stock last year. Shares more than tripled in value in 2023, and they are leading the way again this year with a 45% gain so far. NVDA stock is well on its way to a $2 trillion valuation.
Nvidia’s competitive moat is too broad and deep for challengers to safely cross. It owns the graphics processing unit (GPU) market with an 82% share. Also, it reigns as the dominant force in AI accelerators used at data centers and elsewhere. Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) are nibbling away at the edges, but Nvidia owns the core.
CEO Jensen Huang says every single aspect of the company’s business is on fire. They “are all growth engines in full throttle.”
With no let up in sight for AI chips and capabilities, NVDA stock is the premiere Magnificent 7 stock investors should be buying now.
On the date of publication, Rich Duprey did not hold (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.
