After last year's nasty stock market crash, investors have reason to celebrate in 2023. S&P 500 at one point it gained about 20% from its bear market low, although it has since pulled back a bit. Even so, the index is only 12.6% below its all-time high. If it passes that milestone, it will tick the last box needed to confirm the arrival of a new bull market.
A notable feature of this year's market performance has been the uneven distribution of its gains. Many stocks have yet to overcome last year's bear market, but the so-called "Magnificent Seven" stocks have far outpaced the broader market's gains so far this year:
- Alphabet -- Up to 55%
- Amazon (AMZN 6.83%) -- Up to 51%
- Apple -- Up to 33%
- Metaplatforms -- Up to 161%
- microsoft -- Up to 37%
- NVIDIA (NVDA 0.43%) -- Up to 194%
- tesla -- Up to 72%
Despite being among the best performers in 2023, Wall Street analysts suggest two of these stocks still have plenty of upside, and consensus price targets suggest they could gain 36% and 52%, respectively, in at the time of writing this article, over the next 12 to 18 months.
Image source: Getty Images.
The Magnificent Seven buys number 1: Amazon: 36% implied advantage
While most companies struggle to make a dent in a single business, Amazon has proven itself by leading two industries. Its strengths in these markets, combined with its emerging opportunities, could propel Amazon stock to new heights.
During last year's period of high inflation and rising interest rates, consumer spending was hit hard, but inflation has fallen significantly and experts now see the possibility of the Federal Reserve cutting interest rates. again, both factors that are spurring a rally.
This will undoubtedly benefit Amazon in its position as the undisputed leader in e-commerce. In 2022, Amazon was responsible for about 38% of all online sales in the US, more than the next 14 digital retailers combined, according to data provider Statista. As consumers increase their discretionary spending online, Amazon will reap the benefits.
Digital transformation is spurring greater adoption of cloud computing, another area where Amazon shines. Despite growing competition, Amazon Web Services (AWS) remains the leading provider of cloud infrastructure services, with 30% of the market, according to data provider Canalys. The company could maintain or even expand that lead with the help of accelerated adoption of Generative AIsupport that the company already offers to its cloud customers.
Despite its strong earnings so far this year, Wall Street remains incredibly bullish on Amazon. Among the 53 analysts covering Amazon, the stock has an average price target of $170. This suggests a potential gain for investors of 36% over the next year, compared to the stock's closing price on Friday.
Furthermore, in September, of the 53 analysts who had issued opinions, 51 rated it as a buy or strong buy, and none recommended selling.
Part of the appeal is Amazon's historically low valuation. The stock is currently selling for double next year's expected sales, near its lowest valuation since 2016. That's even more incentive for investors to buy Amazon stock at all costs and hold on for the long term. .
Magnificent Seven buy number 2: Nvidia: 52% implied advantage
One of the biggest catalysts driving the stock market rally this year is the rapid and accelerating adoption of generative AI, and arguably no company is better positioned to benefit from this trend than Nvidia.
The company's next-generation graphics processing units (GPUs), technology originally developed to generate higher quality images in video games, have also become the gold standard for powering cloud computing and artificial intelligence systems. . As companies of all sizes scramble to join the AI โโgold rush, Nvidia has seen an unprecedented surge in demand.
The company's recent results took even the most optimistic on Wall Street by surprise. For its fiscal second quarter of 2024 (which ended July 30), Nvidia's revenue grew 101% year over year to a record $13.5 billion, while its diluted earnings per share soared 854% to 2 $.48. Driving those results was data center revenue, which soared 171%, driven by demand for hardware to power generative AI.
For its fiscal third quarter, Nvidia anticipates another set of record results, forecasting revenue of $16 billion, which would represent a 317% year-over-year increase, again driven by growing demand for AI.
Although its stock price has nearly tripled so far this year, Wall Street sees more potential for Nvidia to gain ground. Among the 53 analysts who covered the stock in September, they assigned it an average price target of $630. This suggests potential gains for investors of 52% over the next year, compared to the stock's closing price on Friday. Additionally, of the 53 analysts, 50 rated it as a buy or strong buy and none recommended selling.
It's important to address the elephant in the room: Nvidia's lofty valuation. The stock currently sells for 40 times forward earnings and 13 times forward sales. While Nvidia's valuation is certainly high, the company's growth deserves a higher valuation. While its revenue has increased 123% so far this year, its profits have soared 335%, causing its price-to-earnings ratio to contract and its valuation to fall. Further contraction is likely as demand for AI continues to rise, pushing its profits even higher.
Alphabet executive Suzanne Frey is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. danny vena He has positions in Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool positions and recommends Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
