Not all investing is about finding the next big thing. In technology, owning and holding a great company can be superior. Some IT giants have the stature and resources to shield themselves from competitors. The "Magnificent Seven" megacap tech stocks have made investors millions.
1. Nvidia: AI chip dominance means bright future Nvidia (NASDAQ: NVDA) represents AI. The reason? It became the leading AI chip firm, with 80%–90% market share. Since 2023, the stock has risen 500%. Nvidia is one of the world's largest companies with a $2.1 trillion market valuation. How can the party continue? Believe it or not, Nvidia can still make millions over time.
Companies worldwide use AI in their products and services. AI isn't random. AI need more powerful data centers as it spreads. Nvidia's CEO predicts over a trillion dollars in data center spending in the next years. Advanced Micro Devices CEO Lisa Su expects the AI chip industry to reach $400 billion.
If you annualized Nvidia's fourth-quarter data center revenue, $72 billion is a small market share. Even as competition nibbles into Nvidia's market share, it's unlikely to collapse. Suppose market share drops 50%. Half of a $400 billion market is three times Nvidia's Q4 data center revenue. Thus, Nvidia's AI growth may continue.
Analysts expect Nvidia will expand earnings by 30% annually over the next three to five years. The stock trades at a forward P/E multiple of 37, which is low for a strong growing company.
2. Meta Platforms: The social media giant with possibilities Meta Platforms (NASDAQ: META) dominates social media under Mark Zuckerberg. Meta's Facebook, Instagram, Threads, and WhatsApp programs are used by about 4 billion people monthly. Meta is an AI stock while being a social networking firm. The corporation makes money by advertising to billions of consumers.
AI chooses app content to optimize user time and engagement. It helps companies create engaging advertising and find the right audience. Reality Labs, an AI and metaverse business arm that invests billions in augmented reality devices and other technologies, is also important to Zuckerberg.
Meta's 2023 user growth of 6% was outstanding given its vast base. Meta Platforms excels in social media, and if the US bans TikTok because to ByteDance's ties to the Chinese Communist Party, it might become even stronger. Meta is a cash cow repurchasing shares and newly paying dividends.
Shares trade at a forward P/E of 24, a good bargain for a company that experts expect to expand earnings by 20% annually for three to five years. Meta shareholders might become millionaires from billions in dividends and repurchases.
3. Alphabet: Don't overlook this AI stock. Alphabet has dominated internet search for 20 years. With 90% of global searches, Google is the world's most visited website. The second spot? Alphabet owns YouTube. Both sites offer lucrative advertising, which Alphabet has used to reach a trillion-dollar market valuation.
ChatGPT and other AI chatbots could hurt Google Search and Alphabet's wealthy business. Alphabet shouldn't be dismissed. Google has launched AI technologies and has 20 years of brand power. It will take time to shift Google's association with internet search.
Remember that Alphabet is still a global powerhouse. Its $70 billion in free cash flow exceeds most corporations' sales. Breaking Alphabet's moat isn't easy, but not impossible. Today, shares trade at a forward P/E of 21, and analysts predict 16% annualized earnings growth over three to five years. Alphabet may be a bargain if it can avoid ChatGPT and other competitors.
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