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The Magnificent Three: Unveiling the Top Performers Among Tech Titans

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For over a decade, the Magnificent Seven - Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, andTesla - have dominated the tech scene. But with recent market fluctuations, investors wonder: are they still golden tickets?

While I have little doubt that each of these companies will continue to be market leaders in the foreseeable future, three of them have superior near-term outlooks.

In this article, I will share why I favor these three components of the elite group and what can change in the others to elevate them to Strong Buy status.

Zacks Investment Research
Image Source: Zacks Investment Research

The Top Dogs

Again, I want to reiterate that although I favor three of these stocks, each of the Magnificent 7 are still exceptional companies and stocks. However, I believe these three have even better outlooks. The chart above, which shows the three-month relative performance actually displays quite clearly which are my favored stocks.

We can see that Nvidia (NVDA - Free Report) , Meta Platforms (META - Free Report)  and Amazon (AMZN - Free Report)  have the best performance and have outpaced the broad market. Not surprisingly, they are also the three stocks that boast Zacks Rank #1 (Strong Buy) ratings, reflecting upward trending earnings revisions.

Nvidia: The Undisputed King of AI

Nvidia's meteoric rise isn't just a hot stock; it's fueled by impressive earnings growth. While its premium valuation is justified to some extent, it isn't yet in bubble territory. Nvidia's future hinges on the continued momentum of the AI revolution, a field where they hold undisputed dominance.

This dominance is further solidified by their Zacks Rank #1 (Strong Buy) with upward trending earnings revisions. For investors seeking exposure to disruptive AI technology, Nvidia offers a compelling case.

Nvidia’s stock is clearly being carried higher by momentum, but those calling for bubble valuations clearly aren’t looking closely at the data. NVDA has a forward earnings multiple of 39.4x, which is below the industry average and below its 10-year median of 41.2x.

Zacks Investment Research
Image Source: Zacks Investment Research

Amazon: Multifaceted Technology Enterprise

Amazon remains the undisputed king of online shopping, consistently delivering growth in its core business. But that's just one facet of this diversified giant.

Amazon Web Services (AWS) is a major revenue driver and enjoys a dominant market position in cloud computing. Additionally, their often-underestimated advertising business has exploded, significantly contributing to their overall profitability. The ad business now adds $60 billion annually to the top line.

With a Zacks Rank #1 (Strong Buy) and the second-highest projected EPS growth (28.1% annually) of the group, Amazon presents an attractive investment option for those seeking exposure to both established and innovative companies.

Meta Platforms: Always Underestimated

Defying expectations in 2023, Meta Platforms (formerly Facebook) emerged as the second-best performing stock in the S&P 500. This impressive feat underscores their underlying strength and potential.

Under CEO Mark Zuckerberg's leadership, the company has undergone a successful transformation, becoming a leaner, more efficient operation. This focus translates to sustained profitability, further bolstered by their product suite reaching a staggering 3.14 billion daily active users.

Meta Platforms also hold an early lead in the burgeoning VR/AR space, positioning them well for future growth. Their commitment to shareholder value through a new dividend payout program further sweetens the deal for investors seeking a balance between growth and stability.

Meta Platforms has EPS growth forecasts of 19.5% annually over the next 3-5 years.

Microsoft: On the Cusp

Microsoft (MSFT - Free Report)  is a close contender for the top dog group but is hindered by an above average historical valuation. But with a Zacks Rank #2 (Buy) rating, it may defy the high valuation and continue higher anyway.

One major advantage for Microsoft lies in its partnership with OpenAI, granting them a significant lead in the field of Artificial Intelligence. This partnership has the potential to revolutionize various aspects of Microsoft's products and services.

Microsoft is trading at a one-year forward earnings multiple of 34.8x, which is well above its 10-year median of 25.7x. It could be argued that its strong positioning in AI could have earned it a more premium multiple, but that is still unclear.

Something worth noting is that Microsoft currently has a very compelling technical trading setup, which may be a catalyst to push it higher. MSFT stock is on the verge of breaking out from this bull flag.

TradingView
Image Source: TradingView

Apple, Alphabet and Tesla

This group is dealing with some more near-term challenges. Firstly, each of them has a Zacks Rank #3 (Hold) rating, indicating a mixed earnings revisions trend. If any of them were to experience some earnings estimates upgrades, it would go a long way in putting them higher in this list, as the Zacks rank clearly has an advantage in picking winning stocks.

Apple (AAPL - Free Report)  is currently dealing with an elevated valuation, while also addressing issues of business concentration. The iPhone makes up such a large percentage of total sales, that investors have become a bit concerned about that being a risk.

This seems to be getting addressed though as its services segment has been growing into a cash cow, and its venture into AR/VR with the Apple Vision Pro shows its effort to branch out into innovative new verticals.

As AAPL stock rolls over some more it will become a compelling investment option.

Alphabet (GOOGL - Free Report) , while boasting one of the most advantageous and dominant businesses with search is also running into some issues. Growth has slowed considerably for the tech giant, and annual sales growth has fallen into the single digits.

Additionally, management seems to be floundering as business innovation suffers and the company bloats to an unreasonable size.

Alphabet is trading at a very appealing valuation though, well below its historical median of 26.2x. I think this could make GOOGL a candidate for activist investors. If Alphabet can get a bit of a shakeup, and boost earnings growth, it will again be a worthy top dog.

Zacks Investment Research
Image Source: Zacks Investment Research

For me, Tesla (TSLA - Free Report)  is much more of a conundrum, and I never felt I had a strong feel for the stock. Over the last several months, Tesla stock has really cratered. This is especially concerning because is has been a banner period for the broader technology industry.

TradingView
Image Source: TradingView

Sales growth has been stalling, and electric vehicle competition has been growing, so for me the picture is a bit more uncertain than the other stocks.

Or course, those who bet against Elon Musk have not done well, and he could most certainly shift this uncertainty. Namely, the development of humanoid robots, which Musk has been teasing online for the last few months could be a world changing product.

While major innovation would be fun, what Tesla really needs to see is upward trending earnings revisions. However, as can be seen below, that is not the case and analysts have unanimously downgraded forecasts.

Until this can improve, Tesla is definitely at the bottom of the list.

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

The Magnificent Seven represents a diverse landscape of opportunities. Nvidia, Amazon, and Meta Platforms stand out for their exceptional growth potential and strong fundamentals. These top performers offer compelling investment options for those seeking exposure to the leading forces shaping the digital revolution.

However, carefully consider the challenges faced by Apple, Microsoft, Alphabet, and Tesla before making investment decisions. Remember, thorough research and understanding each company's strengths and weaknesses is crucial for success.

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