THE “Magnificent Seven“represent some of the strongest companies in the world. However, a few members of this elite group have failed to live up to expectations in the first half of 2024.
Since the start of the year, the very popular S&P 500 The index rose 14.8% through June 26, but weak iPhone sales weighed on Apple (NASDAQ:AAPL) shares, up 11.6%. You’re here (NASDAQ:TSLA) was the worst performer, with a recent drop in sales of its electric cars sending the stock down 21%.
Sometimes betting on strong companies when they experience temporary weakness can pay off in the long run. Indeed, both companies have promising growth opportunities. artificial intelligence (AI)which could have a significant impact on shareholder returns over the next decade.
Here’s why these stocks are ready to take off.
1. Apple
Weak iPhone sales have weighed on Apple’s stock since the start of the year, but since the company’s last earnings report in early May, the stock has outperformed the S&P 500, up 21%. The stock saw a significant rebound after the company’s Worldwide Developers Conference in June, where Apple unveiled highly anticipated artificial intelligence (AI) features coming to iOS 18 later this year.
Apple Intelligence will be the biggest update to Apple’s operating system in years. The AI ​​features in this update will allow users to summarize long texts, create images, and receive personalized search assistance from Siri, to name a few highlights.
Of course, Apple has a commercial advantage here. While iOS 18 will be free to download like previous updates, AI features will require devices with newer processors, like the iPhone’s A17 Pro chip. iOS 18 will provide a huge incentive for users of older devices to upgrade, which could lead to record iPhone revenues during the holiday quarter.
Beyond iOS 18, the iPhone 16 is also expected to come in a new, larger 6.9-inch size for the Pro Max version, which could be enough to drive demand on its own. All of this sets up for a period of improving revenue growth over the next year.
Wall Street analysts are increasingly optimistic. The current consensus is that Apple sales will only grow 3% in fiscal 2025, but Evercore ISI recently raised its growth forecast from 4% to 7% and even envisions a scenario in which Apple could record double-digit revenue growth next year.
More analysts may revise their growth estimates upwards as the launch of iOS 18 draws closer, which could push the stock price even higher in the second half of 2024.
Of course, the rise of AI software could also benefit Apple’s higher-margin services businesses (e.g., app sales) and generate above-average profit growth. For these reasons, Apple is likely headed for a period of accelerated growth that could propel the stock higher over the next few years.
2.Tesla
Tesla shares have been cut in half from their all-time high. Several reasons are to blame, including weak auto demand amid rising interest rates and uncertainty surrounding CEO Elon Musk’s recent shareholder vote to reinstate CEO Elon Musk’s 2018 performance award.
With shareholders recently voting to reinstate Musk’s $56 billion in compensation, this clears a major cloud hanging over the stock, as some investors feared Musk would ultimately leave Tesla if the vote did not pass. However, the stock has rallied since the vote as investors turned their attention to Tesla’s growth opportunities.
Tesla plans to unveil Cybercab in August, opening up a massive market for the company. Analysts expect the majority of Tesla’s revenue to come from the robo-taxis market in the long term, which is significant given that the company’s $626 billion market cap is driven primarily by its revenue from electric cars, which currently generate over 80% of the company’s revenue. However, RBC Capital estimates that 52% of Tesla’s valuation will ultimately be driven by robo-taxis, 27% by self-driving car software, 15% by Megapack batteries, and just 6% by electric cars.
Musk compared Tesla’s robotaxis business strategy to that of services like Airbnb And UberTesla will operate part of the robotaxis fleet itself, while a number of customers can choose to make their own cars available for the service. Tesla aims to one day have tens of millions of cars in its fleet around the world. This would result in a new high-margin revenue stream in the form of service fees that would accrue to Tesla.
The robotaxi opportunity reflects Tesla’s growing AI capabilities. It has about 35,000 Nvidia H100 graphics processing units (GPUs) are currently used for AI training, but Tesla plans to have more than double that number by the end of 2024. These processors are not cheap, with each H100 selling for thousands of dollars. Tesla’s capital expenditures have quadrupled over the past four years to $9 billion and will continue to grow.
If Tesla succeeds in expanding its robotaxi service over the next decade, it could have a significant impact on the company’s profitability and, as a result, lead to a higher valuation of Tesla stock. Given that the company has a history of proving its critics wrong, it’s worth keeping a few shares of this Magnificent Seven company among your stock holdings for a rainy day.
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John Ballard has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Airbnb, Apple, Nvidia, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.
Halfway to 2024: 2 Underperforming ‘Magnificent Seven’ Stocks to Buy Before They Take Off was originally published by The Motley Fool
