AI Spending Isn't Slowing Down – the Mag 7 Stocks Are Still the Best Bet
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November 26, 2024
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Hey everyone! So, Wall Street’s been asking a lot of questions about Big Tech and their AI investments, but honestly, Microsoft and Google (Alphabet) aren’t going to back off anytime soon. These companies are dumping billions into AI technologies like chatbots, and it’s clear – AI isn’t a trend, it’s the future. But the big question is, which stocks will take the lead?
Sure, Nvidia had a bit of a stumble with its latest earnings report – profits were up, but margins on their Blackwell AI platform weren’t as high as expected. However, the long-term story for AI is still very strong. Analysts are still betting on companies like Nvidia, Microsoft, Alphabet, Amazon, and Meta to continue driving the AI boom with chips and cloud services.
Even with the short-term dip, Nvidia’s data-center chip sales absolutely soared – over $30 billion in Q3 alone, a 112% year-over-year increase! Competition from AMD is real, but the demand for AI chips is through the roof, and these giants aren’t slowing down. In fact, analysts expect Big Tech’s capital spending to surge by double-digit percentages, pushing total investments to nearly $300 billion by 2027 (according to FactSet).
The “Magnificent Seven” – Nvidia (NVDA.US), Microsoft (MSFT.US), Amazon (AMZN.US), Meta (META.US), Alphabet (GOOGL.US), Apple (AAPL.US), and Tesla (TSLA.US) – are still seen as the growth drivers for AI and tech. Analysts expect them to see continued strong sales growth, with companies like Nvidia likely to improve margins simply by cranking out more chips. For others like Meta, it’s all about attracting more ad dollars, and that’s a solid bet with their platform reach.
Even though the Mag 7 has crushed the market this year (twice the S&P 500’s gains), they’re still trading at a reasonable valuation of around 27 times expected earnings for the next 12 months, down from over 30 times earlier this year and near the middle of its range since 2016 (according to Evercore). This suggests that despite their strong performance, these stocks aren't overly inflated compared to their historical averages. So, while there may be short-term fluctuations, these companies are well-positioned to keep growing as AI becomes an even bigger part of the global economy.
I think sticking with the Mag 7 is a wise move. The AI wave is only going to get bigger from here.