Do Not Overlook These Top Seven Stocks for Investment Potential

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Do Not Overlook These Top Seven Stocks for Investment Potential

Nvidia (NASDAQ:NVDA) became a Wall Street darling last year when it cornered the market on artificial intelligence (AI) chips and earned its place in the “Magnificent Seven,” a phrase used to describe the seven most successful technology companies. important. As a result, the company’s stock is up 242% since last March, almost entirely on excitement about its AI prospects.

With the industry expected to grow at a compound annual growth rate (CAGR) of 37% until at least 2030, it’s no wonder investors have flocked to the market. However, many companies are moving into AI and could have more room to maneuver than Nvidia or could trade at a better price than the chipmaker.

It is therefore wise to look for alternative ways to invest in this emerging sector. Other Magnificent Seven companies are a great place to start, with many known for their long-term reliability and significant investments in AI.

So forget Nvidia. You’ll regret not buying these Magnificent Seven shares instead.

1.Alphabet

Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) CEO Sundar Pichai describes the company as being an AI-focused company for seven years. This year, the poor debut of its new big language model Gemini has cast doubt on its potential in the industry. However, the company remains a tech giantwith significant cash reserves that will likely allow the company to maintain its dominance and possibly catch up with its AI rivals.

In-house brands like Android, YouTube, Chrome, and Google have given Alphabet a powerful position in the technology sector. These brands attract billions of users and have helped the company’s annual revenue increase by 90% over the past five years, with operating profit up 135%. Meanwhile, Alphabet’s many products create almost endless opportunities to grow its business with AI.

Improving Gemini could allow Alphabet to offer more effective advertising, develop a search experience closer to OpenAI’s ChatGPT, better analyze YouTube viewing trends, and expand its AI cloud services across Google Cloud.

Do Not Overlook These Top Seven Stocks for Investment Potential

NVDA PE Ratio Chart (Forward)

The chart above shows that Alphabet’s stock is trading at a significantly better value than Nvidia’s, with a much lower forward price-to-earnings (P/E) ratio and price-to-free cash flow ratio. These are useful valuation metrics because they take into account the financial health of a company: the lower the number, the better the value.

Additionally, Alphabet’s free cash flow of nearly $70 billion, compared to Nvidia’s $27 billion, suggests it is potentially better equipped to continue investing in its business and weather current headwinds.

The Google company may have hit a few bumps in the road this year, but that’s precisely why now is a great time to invest in its stock for the long term. The Magnificent Seven company has exciting prospects for the coming years and trades at a premium to Nvidia.

2. Amazon

Amazon (NASDAQ:AMZN) posted impressive growth in 2023 after facing decline following the economic downturn in 2022. In fiscal 2023, Amazon’s revenue grew 12% year-over-year, with operating profit that more than tripled to $37 billion.

A strong recovery in e-commerce profits over the last year has seen the company’s free cash flow soar 904% to exceed $32 billion. This indicates that it has the financial resources necessary to continue its expansion and overcome possible obstacles.

Amazon has come a long way since its beginnings as an online book retailer in Seattle nearly 30 years ago. The tech giant has expanded across many industries, from becoming an e-commerce titan to cloud market leader, developing space satellites and venturing into grocery, gaming, big tech public, and much more.

But all eyes have been on Amazon’s AI efforts over the past year. As the operator of the world’s largest cloud service, Amazon Web Services (AWS), the company has the potential to leverage its massive cloud data centers and drive the generative AI market.

In 2023, AWS responded to the growing demand for AI services by introducing a variety of new tools. Amazon is even using AI to power its retail site and announced an AI shopping assistant called Rufus before its latest earnings release.

Amazon is poised to become a major threat in the long-term AI space, but also has a lucrative retail business that makes its stock too good to pass up.

Chart of NVDA EPS estimates for the next 2 fiscal yearsChart of NVDA EPS estimates for the next 2 fiscal years

Chart of NVDA EPS estimates for the next 2 fiscal years

Additionally, the chart above indicates that Nvidia’s earnings could reach $36 per share over the next two fiscal years, while Amazon’s earnings could reach $7 per share. On the surface, Nvidia appears to be the big winner. However, multiplying these numbers by the companies’ forward P/E ratios (36 for Nvidia and 43 for Amazon) yields a stock price of $1,309 for Nvidia and $301 for Amazon.

Given their current positions, these projections would see Nvidia’s stock rise 45% by fiscal 2026 and Amazon’s stock rise 67%. Along with a lucrative e-commerce business and a growing position in AI, Amazon is currently a Magnificent Seven stock worth considering over Nvidia.

Should you invest $1,000 in Alphabet right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Cook has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Alphabet, Amazon and Nvidia. The Motley Fool has a disclosure policy.

Forget Nvidia: You’ll Regret Not Buying These ‘Magnificent Seven’ Stocks was originally published by The Motley Fool

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