Prediction: These will be the most valuable “Magnificent Seven” stocks by the end of 2024

If you’re wondering why the stock market is back to all-time highs, there’s a simple explanation. It is the “Magnificent Seven.”

This is a group of seven most valuable technology stocks, including: microsoft, apologize, nvidia (NVDA -1.29%), alphabet, Amazon, meta platformand tesla.

These stocks delivered huge returns last year, and many of them are off to a strong start to 2024, capitalizing on the AI ​​boom and recovery from the 2022 bear market. Today, Microsoft is the most valuable Magnificent Seven stock and most valuable company in the world. But I think we’ll see the torch being passed this year. What company will take Microsoft’s place? AI superstar Nvidia is already dominating the AI ​​chip market and stock market narrative.

Here are some reasons why Nvidia is expected to become the world’s most valuable company by the end of the year.

Image source: Getty Images.

1. NVIDIA’s competition is not over yet

It’s no secret that Nvidia rode the generative AI boom to record profits. Since the beginning of 2023, the stock price has risen more than 500%, surpassing $1 trillion in market capitalization, and surpassed $2 trillion earlier this year.

Sales have tripled and profits are growing even faster. That’s because Nvidia sells the essential components for building the AI ​​models and applications that just about every major company is counting on. That technology infrastructure relies on Nvidia’s graphics processing units (GPUs), which have been in huge demand as analysts estimate the company owns a 98% share of the data center GPU market.

It is true that competition is becoming fiercer. AMD launched its MI300 creation AI accelerator in December, but the company’s first-quarter guidance suggests its data center revenue will still be only a fraction of Nvidia’s.

Just because Nvidia has technological and structural advantages over its ambitious rivals, that doesn’t mean competition entering the market will do much to hurt Nvidia’s lead. Some industry officials also predicted this.

For example, Matt Wood, Vice President of Artificial Intelligence Products at AmazonWeb Services, said: information“There is no meaningful competition” for Nvidia, he said, and he was skeptical that AMD or anyone else could pose a significant challenge to the AI ​​chip leader.

If NVIDIA can successfully defend its market share against AMD, intelAnd others will cause stocks to move much higher.

2. Supply will continue to be limited

Skeptics believe Nvidia and other AI stocks are in a bubble, with huge profits temporarily inflated by limited supply of AI chips. They argue that once the supply shortage is resolved, prices will fall and Nvidia’s profits will fall.

However, there are no signs that the supply imbalance will resolve itself any time soon.

“We expect supply of our next-generation products to be limited as demand far exceeds supply,” Nvidia CFO Colette Kress said in a recent earnings call, and CEO Jensen Huang said supply would improve and “We expect demand to increase,” he said. “It will continue to be stronger than our supply.”

“With any new product, demand is greater than supply. That’s the nature of new products,” Huang said, raising another key point in understanding the supply-demand dynamics of AI chips.

While competition may fill supplies for less powerful components, demand for cutting-edge technology will likely continue to be difficult to meet, and this is where Nvidia excels. It should remain the leader in the GPU product category it invented 25 years ago and has continued to evolve since then.

3. NVIDIA will enter new markets

Nvidia’s near-term success will be determined by its data center business, but investors have forgotten that the company has the ability to move into new markets, such as PC chips, announced in January, and is well-positioned to take advantage of developments. is not allowed. Markets such as self-driving cars and metaverse.

Nvidia’s technology has a long history of discovering new applications, including digital gaming, cryptocurrency mining, and now AI, but it would be a mistake to think that it won’t be able to penetrate and dominate new markets like AI.

The PC chip market presents an attractive opportunity for Nvidia, which could generate tens of billions of dollars in annual revenue, and Nvidia could turn the tables on AMD and Intel by taking market share from them in PCs rather than making concessions in AI.

4. Wall Street continues to undervalue Nvidia stock.

Nvidia has surged past Wall Street expectations in each of the past four quarters, showing that analysts continue to underestimate the company’s growth and demand for its AI components.

Currently, the average analyst expects Nvidia to generate earnings per share of $24.50, but that figure is likely to be higher, assuming the company’s current momentum continues.

At that valuation, Nvidia is trading with a forward price-to-earnings (P/E) ratio below 40, making it not much more expensive than Apple or Microsoft, the two companies chasing it for the title of Best Magnificent. Seven stocks. Based on estimates for the fiscal year ending in June, Microsoft is trading at a P/E ratio of 35, while Apple is trading at a forward P/E of 26.

With a market capitalization of $2.32 trillion, Nvidia’s stock price would need to rise 31% to surpass Microsoft’s current level of $3.4 trillion. Given its dominance in AI chips and the ongoing supply shortages that must support its wide profit margins, it appears Nvidia could reap these kinds of profits.

It is no coincidence that Nvidia’s stock price soared amid the AI ​​boom. This holds the key to unlocking the power of generative AI, and this is unlikely to change. As demand for AI and the components that make it work grows, Nvidia should rise even higher.