The “Magnificent Seven” stocks dominated the market in 2023. The worst performer in the group, Apple (NASDAQ: AAPL), rose 49%, and the best, Nvidia (NASDAQ: NVDA), jumped nearly 240%. But with such strong runs behind them, do any of them have room left to grow in 2024?
The answer: Yes, and some are still worth buying at their current prices.
Apple and Nvidia: Overvalued or Opportunity?
I’m breaking the seven up into buy, sell, and hold groups. Starting with the sell set, I think Apple and Nvidia’s stock prices far outpaced their businesses.
Nvidia’s 2023 success has been spurred on by the artificial intelligence (AI) arms race, and its business has responded in kind. In its fiscal 2024 third quarter (which ended Oct. 29), revenue rose 206% year over year. Furthermore, management guided for $20 billion in fiscal Q4 revenue, up 231%. The stock’s movement was warranted given the company’s sales growth, but I’m concerned that investors are forgetting that Nvidia operates in a cyclical industry.
Nvidia goes through boom and bust cycles, and right now is certainly a boom. However, it’s unknown how many AI data centers will need to be built in the near to medium term. If demand for its high-powered chips is satisfied shortly, the stock may come crashing back down to earth. Plus, it’s trading at 65 times earnings — a quite expensive premium.
From a business standpoint, Apple is the opposite of Nvidia. Its sales declined throughout 2023. Even so, its stock skyrocketed. This makes little sense, and more headwinds are coming up: a U.S. International Trade Commission order this month forced Apple to halt the import and sale of some Apple Watches due to a patent dispute (although a court ruling temporarily allowed sales to resume). With all this in mind, 2024 could be a tough year for the company. And considering that Apple stock has a higher valuation than “Magnificent Seven” members Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META), it doesn’t make a lot of sense to own it compared to its peers.
Microsoft and Tesla: Show Me the Value
I view Microsoft (NASDAQ: MSFT) and Tesla (NASDAQ: TSLA) as holds currently. Microsoft had a strong year, as its revenues and earnings per share (EPS) steadily rose. However, Microsoft trades at a steep premium, even on a forward earnings basis.
Microsoft is executing well, but its valuation is a bit too much from a historical perspective to consider buying. Still, it’s far from a sell.
Tesla is one of the hardest companies to value on Wall Street, as its valuation is wrapped up in expectations for future products. It’s also set to face some added headwinds. Starting in 2024, some Tesla models will only qualify for half of the $7,500 federal EV tax credit due to where the automaker sources materials for their batteries and where it produces them.
When judging whether any given moment is a better time to buy or sell Tesla stock, I like to look at its price-to-earnings and price-to-sales ratio compared to historical trends. For Tesla, these are trading roughly near the midpoint of valuations seen since mid-2022.
I’m taking a wait-and-see approach to Tesla stock heading into the new year as the stock doesn’t look like a bargain at these prices.
Advertising Rebound: Alphabet, Meta Platforms, and Amazon
That leaves Alphabet, Meta Platforms, and Amazon (NASDAQ: AMZN) in the buy now category. These stocks trade at reasonable levels and are expecting strong tailwinds next year.
Even though Alphabet and Meta have AI investments, they are mostly advertising businesses. In 2022 and 2023, the advertising market was fairly weak as companies pulled back on their marketing spending due to fears that a recession was coming. However, now that we have lapped that pullback, Alphabet and Meta are posting meaningful growth in their advertising businesses. Their ad revenues grew by 9% and 24%, respectively, in Q3.
Next year should be another strong recovery year for advertising, which will boost both companies.
Amazon has also had a strong 2023, with its margins rising.
However, this chart doesn’t tell the full story, as this takes into account Amazon’s profits over the past 12 months. If you focus on its latest quarterly results, Amazon’s margins are nearing (or have already set) all-time highs.
The fact that Amazon posted solid results in historically weak quarters bodes well for Q4, which is usually its strongest one. No investor knows what a fully profitable Amazon looks like, but 2024 could give us a glimpse.
Investor Alert: Nvidia Not Among Top 10 Stocks for 2024
Investing in a stock can be like planting a seed in your garden — it requires careful nurturing, patience, and a bit of luck. But what if you were told that your seed isn’t among the finest in the orchard? In the world of stock market gurus, the Motley Fool carries the wisdom to discern the mightiest stocks worthy of planting. Unfortunately, Nvidia Inc. is notably absent from this eulogized roll call of the mightiest contenders for 2024.
Missing the Mark
Nvidia Inc., the technological juggernaut that has towered like a colossus in the graphic processing unit (GPU) domain, finds itself omitted from the Motley Fool’s exalted list of 10 best stocks for the upcoming year. The revered panel of experts at the Motley Fool Stock Advisor purvey hopeful investors with a blueprint for success. But the glaring absence of Nvidia from their carousel of favored prospects is not to be dismissed lightly.
The Winning Blueprint
The Motley Fool’s Stock Advisor service has long offered investors a crystalline paradigm for success in the tempestuous waters of the stock market. The service envelops acolytes with guidance on portfolio construction and delivers a monthly benediction of two new stock picks. A claim to fame, Stock Advisor has thrice overmatched the benchmark return of the illustrious S&P 500 since its inception in 2002.
As the sun sets on 2023, the Motley Fool brings its acumen into stark relief, spotlighting the 10 choicest stocks in which they discern the potential for monstrous returns in the foreseeable future. It is a watchlist that harbors the aspirations of many and holds the promise of substantial fortunes to those in whose hands it might fall.
Parting Disclaimer
Coursing beneath this sage advice is a latent disclosure: the Motley Fool is no stranger to financial titans. Featuring a board graced with industry luminaries such as Randi Zuckerberg, a former director of market development and spokesperson for Facebook, and John Mackey, erstwhile CEO of Whole Foods Market, an Amazon subsidiary — the Motley Fool’s reach is profound. Keithen Drury, a discrete member, has vested interests in Alphabet, Amazon, and Tesla.
With the wide turret of their advisory services, the Motley Fool professes robust positions in a cadre of blue-chip companies, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Its earnestness is distilled in a solemn disclosure policy, furnishing a glimpse into its earnest and materialistic proclivities.
The overlords of Nasdaq might stir from their reverie, impelled by the profundity of the Motley Fool’s reverence for prudent investing. For those pondering a dalliance in the stock market, the absence of Nvidia from the roster of elite stocks for 2024 shall stand as an ominous augury.
