Here are my best “Magnificent Seven” stocks to buy and hold for the next decade

By | March 16, 2024

Many investors are interested in the “Magnificent Seven” stocks for good reasons other than their stellar returns over the past year. This elite group of tech companies has strong brands and a growing customer base, and they are highly profitable businesses – everything an investor looks for in a solid investment.

Over the past year, the Roundhill Magnificent Seven ETF has returned 51% and defeated the Nasdaq Composite‘s 32% and the S&P500‘s return of 23%. There is some debate about how long this group will continue to outperform in the short term. On a price-to-earnings (P/E) basis, most of these stocks trade at large premiums to the average stocks in the major indexes.

The most expensive of the seven is Nvidia (NASDAQ: NVDA), which currently has a forward price-to-earnings ratio of 77. Despite the high valuation, the company’s superior growth and future opportunities could justify even more new highs in the coming years. This is why the stock remains a core holding in my portfolio.

Nvidia’s growth trajectory

Nvidia is benefiting as data centers move from central processing units (CPUs) to the much more powerful graphics processing units (GPUs) for artificial intelligence (AI) workloads. Historically, data centers spent around $250 billion per year on infrastructure, but this amount has increased for the first time in many years, which could be just the start of a major spending boom.

The market for Nvidia’s products appears to be much larger than initially thought a few years ago. Revenue rose 265% year over year to $22 billion in the fiscal fourth quarter, significantly outpacing the growth of the other Magnificent Seven companies.

META Sales (Quarterly YoY Growth) ChartMETA Sales (Quarterly YoY Growth) Chart

META Sales (Quarterly YoY Growth) Chart

Nvidia is just the beginning of this possibility. Company executives have talked about a $1 trillion data center infrastructure that is beginning to adopt accelerated computing, which is the use of multiple GPUs working together to process large data workloads.

However, the chances could be much higher. AI allows companies to use data in ways not previously possible, as Nvidia Chief Financial Officer Colette Kress recently discussed Morgan Stanley technology conference.

This is why new types of data centers are emerging called GPU-specialized cloud service providers. It’s one reason Nvidia executives believe the actual data center infrastructure market could be worth closer to $2 trillion.

Why buy the shares?

AI is completely turning traditional computing upside down, which is reflected in the increasing demand for Nvidia’s H100 GPU. It has almost become a boast for companies to talk about how many H100s they have purchased. Magnificent Seven member Metaplatforms has said it plans to have 350,000 H100s operational by the end of the year.

Demand is already exceeding supply for Nvidia’s H200 GPU, which is on track to hit the market in the second fiscal quarter. Company guidance calls for revenue to rise 234% year-over-year in the first fiscal quarter.

Over the long term, analysts expect Nvidia to grow earnings at 35% per year, which is also higher than the other Magnificent Seven.

META EPS LT chart with growth estimatesMETA EPS LT chart with growth estimates

META EPS LT chart with growth estimates

Nvidia’s leading share of the GPU market should translate into more growth as data centers continue to upgrade components for AI. As this opportunity unfolds, this GPU stock offers a long-term upside that could outperform the other Magnificent Seven over the next decade. Compared to expected earnings this year, Nvidia is not that expensive, with a price-to-earnings ratio of 37.

Nvidia has been the king of GPUs for years, so it basically has the right product at the right time to take advantage of the AI ​​boom. But what ultimately seals the deal for me is how much money the company produces.

Remaining free cash flow totaled $27 billion, up tenfold over the past five years. This gives the company tremendous resources to stay at the forefront of GPU innovation and generate shareholder returns for years to come.

Should You Invest $1,000 in Nvidia Now?

Consider the following before buying shares in Nvidia:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor service has more than tripled the return of the S&P 500 since 2002*.

View the 10 stocks

*Stock Advisor returns March 11, 2024

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 spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard has positions in Nvidia and Tesla. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Here’s my best “Magnificent Seven” stock to buy and hold for the next 10 years, originally published by The Motley Fool

Leave a Reply

Your email address will not be published. Required fields are marked *