The “Magnificent 7” group is taking the helm of market performance from the previously celebrated “FAANG” group. The Magnificent 7 stocks, which includes Meta Platforms (NASDAQ:META), Amazon, Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), Alphabet (NASDAQ:GOOGL), Microsoft and Nvidia, has been widely recognized by analysts for its major influence on the investment strategies.
The original FANG acronym, representing Facebook, Amazon, Netflix and Google, was coined in 2013 by financial media personalities Jim Cramer and Bob Lang. With the addition of Apple in 2017, it evolved into FAANG. However, as Google transitioned to Alphabet and Facebook to Meta Platforms, and with the rise of Microsoft and Nvidia, FAANG no longer adequately captured the market’s top performers.
Michael Hartnett, managing director and chief investment strategist at Bank of America (NYSE:BAC) Global Research introduced the term Magnificent 7. The group’s dominance and the shift in investor interest toward mega-cap tech giants, especially in the wake of Silicon Valley Bank’s failure inspired the classic Western film.
Each member of the Magnificent 7 either operates as a pure technology company or is tech-adjacent, integrating advanced technology to deliver their products and services. Their monopolistic or oligopolistic positions, pricing power and strong earnings potential characterize these companies. Moreover, they have the financial capacity to invest in artificial intelligence and other innovations, maintaining their competitive edge in the market.
The group returned more than 75% in 2023 with names like Nvidia and Meta Platforms rising about 200% or more. For the same period, the benchmark stock market index S&P 500 rose about 24%.
Here we look at the 3 Magnificent 7 stocks that could keep rising amid the generational AI-led transformation that is taking place.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) is a semiconductor company best known for its graphics processing units (GPUs). It has expanded into data centers, AI research, and autonomous vehicles with powerful GPU technology, driving performance for gaming, deep learning and professional visualization. Its advanced processors are pivotal and the main reason why Nvidia today is a multi-trillion dollar company.
Nvidia revealed in February that its sales surged 265% year-over-year amid the unprecedented AI demand. The chipmaker reported earnings that exceeded Wall Street expectations for both earnings and revenue, projecting even stronger performance for the current quarter. This has kept the NVDA stock rally intact.
The demand for these GPUs, essential for building AI models on servers, has made Nvidia a primary beneficiary of this AI trend. This is the main reason why investors should continue to own Nvidia stock. It is as simple as that.
Nvidia said it expects to generate $24 billion in sales in the current quarter, up from $22.10 billion in the last quarter.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a global technology leader recognized for its Windows operating system, Microsoft Office suite and Azure cloud computing platform. It has also ventured into gaming with Xbox and the recent acquisition of Activision Blizzard, productivity software, as well as LinkedIn.
The company recently delivered another set of results as AI demand continues to rise. The tech giant reported earnings of $2.94 per share, exceeding the projected $2.82, and posted revenue of $61.86 billion against the anticipated $60.80 billion.
A 17% year-over-year increase in total revenue for the quarter ending March 31 highlighted Microsoft’s impressive performance. The company’s net income rose to $21.94 billion, or $2.94 per share, up from $18.30 billion, or $2.45 per share, in the same quarter of the previous year.
Azure and other cloud services experienced revenue growth of 31%, a figure that not only shows an improvement from the 30% growth in the previous quarter but also beats the 28.8% growth anticipated by Wall Street analysts.
The company is predicting $64 billion in sales for the current quarter. Addressing future expectations, CFO Amy Hood noted that the current demand for artificial intelligence AI is slightly exceeding Microsoft’s capacity to supply. In response, the company has been ramping up capital expenditures, particularly to acquire Nvidia graphics processing units, which are essential for training and running AI models.
All this positions Microsoft in a unique position going forward.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is a technology company known primarily for its e-commerce platform. It has diversified into cloud computing via Amazon Web Services (AWS), streaming through Prime Video, and consumer electronics with Kindle and Echo devices. Its focus on customer-centric innovation is well recognized. The company is also known as an AI pioneer.
Amazon reported EPS of $0.98, which exceeded the anticipated $0.83. Revenue also outdid forecasts, coming in at $143.3 billion against the expected $142.5 billion. Notably, AWS generated $25 billion in revenue, surpassing the predicted $24.5 billion, while advertising revenue hit $11.8 billion, slightly above the $11.7 billion forecast.
Amazon’s operating income experienced a remarkable surge, soaring over 200% to reach $15.3 billion, which notably outstripped the revenue growth rate. This impressive gain underscores the impact of Amazon’s cost-reduction strategies and efficiency improvements. AWS, the company’s cloud computing arm, contributed 62% of the total operating profit.
For the current quarter, Amazon forecasts revenue to be in the range of $144 billion to $149 billion, indicating a growth of 7% to 11%. This makes Amazon a robust growth story within the Magnificent 7 stocks, despite its multi-trillion dollar valuation.
On the date of publication, Shane Neagle 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.
