The artificial intelligence (AI) market exploded last year and became one of the biggest growth drivers of the Nasdaq Composite’s recovery. The market faced an economic downturn the previous year, which sent countless stocks plunging. However, the Nasdaq Composite is up 44% year over year and climbing, primarily thanks to excitement over AI.
According to data from Grand View Research, the AI market is projected to have a compound annual growth rate of 37% through 2030. The industry hit nearly $200 billion last year, but this trajectory would see it achieve close to $2 trillion by the decade’s end. So, despite the market’s meteoric rise over the last year, new investors still have much to gain from AI.
The “Magnificent Seven” stocks of the tech world — Apple, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)Amazon, Meta Platforms, Microsoft, Nvidia (NASDAQ: NVDA)and Tesla — are a great place to start. These companies are investing heavily in AI and have the brand power to go far in the industry. It’s not too late to invest in AI, so here are two Magnificent Seven stocks to buy and hold forever.
1. Nvidia
Nvidia’s business was brought front and center last year when it snapped up an estimated 90% market share in AI graphics processing units (GPUs), the chips necessary for training and running AI models. Meanwhile, competitors like Advanced Micro Devices and Intel scrambled to catch up.
Soaring demand for AI services led to a similar demand for high-powered chips, with Nvidia perfectly positioned to supply its hardware to most of the market. As a result, earnings hit record heights over the last year.
In the fourth quarter of fiscal 2024 (ended in January), Nvidia’s revenue increased by 265% year over year to $22 billion. Meanwhile, operating income jumped 983% to nearly $14 billion. The monster growth was primarily from a 409% rise in data center revenue, reflecting increased chip sales.
The chipmaker’s massive success in AI has also seen its free cash flow soar 430% in 12 months to $27 billion. Comparatively, AMD’s is at just over $1 billion, while Intel’s is negative $14 billion.
Story continues
So, despite new GPU releases from both competitors, Nvidia’s head start in AI potentially pushed it further ahead with greater cash reserves to continue investing in its technology and retain its market supremacy.
After a monster growth year, some analysts are questioning whether Nvidia has much more to offer. However, the significant potential of AI and the company’s powerful market position means it remains an attractive long-term play.
Moreover, this chart shows Nvidia’s price-to-earnings (P/E) ratio and price-to-free-cash-flow plunged 45% and 48% over the last year, meaning the company’s stock is trading at its best value in months.
Alongside a solid role in AI, Nvidia is a Magnificent Seven stock that is too good to pass up.
2. Alphabet
It’s impossible to deny Alphabet’s top spot in tech, with brands like Android, YouTube, and Google attracting billions of users worldwide. The popularity of these products enabled Alphabet to achieve a leading 25% market share in digital advertising and become the world’s sixth most valuable company by market cap.
However, all eyes have been on its expanding AI efforts over the last year. At the end of 2023, the company debuted Gemini, a large language model that looked likely to make Alphabet competitive against cloud rivals Microsoft and Amazon.
Yet the Google parent’s stock was down 7% in the last month after a disappointing launch for Gemini. Alphabet recently held a presentation for the new AI model, and Gemini gave inaccurate depictions of historical figures and failed to recognize key differences between other prominent figures. The blunders forced Alphabet to take its AI image services offline for now.
Despite recent failures, Alphabet remains an attractive way to invest in AI over the long haul. Last year, the company hit $70 billion in free cash flow, more than Microsoft or Amazon. The company has the financial resources to keep investing in its business and the brand power to attract users to its services.
Furthermore, the table above shows that Alphabet has the lowest P/E and second-to-lowest price-to-free-cash-flow of all of the Magnificent Seven. As a result, Alphabet’s stock is a bargain compared to its rivals, making it a lower-risk way to invest in AI.
In addition to a range of immensely popular brands, Alphabet is one of the best Magnificent Seven stocks to buy now and hold forever.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of March 11, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
It’s Not Too Late to Invest in Artificial Intelligence: 2 “Magnificent Seven” Stocks to Buy and Hold Forever was originally published by The Motley Fool
