Friday, May 24, 2024

Don’t Get Left Behind: Why These 4 Tech Stocks Are the Smarter Investment Now

HomeStock-MarketDon't Get Left Behind: Why These 4 Tech Stocks Are the Smarter...

In the ever-shifting world of technology stocks, a new elite group has emerged in 2024 – the “Fab Four” as they’ve been dubbed. These four tech titans – Nvidia, Meta Platforms, Amazon, and Microsoft – are leaving the rest of their former “Magnificent Seven” peers in the dust with staggering stock gains so far this year.

After the long, brutal tech bear market finally ended in 2023, the original “Magnificent Seven” group of big tech stocks roared back with an average gain over 111% for the year. The members were the usual suspects – Nvidia, Meta (Facebook), Tesla, Amazon, Alphabet (Google), Microsoft, and Apple.

But the dawn of 2024 has ushered in a shakeup. While the full Seven continued rising early this year, eventually the pack began to splinter in performance. Three stocks – Tesla, Apple, and Alphabet – have lagged the broader market indexes like the S&P 500. Meanwhile, the other four — Nvidia, Meta, Amazon, and Microsoft — have absolutely skyrocketed, prompting Wall Street to rechristen them the “Fab Four.”

So just what is propelling the Fab Four’s astronomical success in 2024 compared to their peers? The key driver has been their pioneering work in the white-hot field of artificial intelligence (AI), particularly in areas like machine learning, natural language processing, and generative AI tools and models.

“The Fab Four have clearly staked out leadership positions in AI through a combination of innovation, key acquisitions and investments, and sheer financial muscle to outspend the competition,” said Dan Ives, an analyst at Wedbush Securities. “For investors, these are the elite tech stocks to own for playing the AI boom over the next decade.”

Leading the Fab Four charge is chipmaking guru Nvidia. The company’s graphics processing units (GPUs) have become the gold standard for powering AI systems, dominating over 95% usage for AI data center workloads and machine learning according to analysts. Nvidia GPUs enable everything from language models like ChatGPT to autonomousdriving AI capabilities.

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Nvidia’s financial performance has been nothing short of extraordinary. In their most recent quarter, revenue surged 265% year-over-year while profits skyrocketed by 769%. Little wonder their stock has soared 81% in 2024 so far.

“Nvidia’s leadership position in AI combined with the revolutionary nature of their chips gives them a multi-year tailwind,” said Angelo Zino, an analyst at CFRA Research. “We see AI becoming a $1 trillion dollar opportunity and Nvidia is pacing to be the clear leader.”

Coming in close behind Nvidia in 2024 stock gains is social media giant Meta Platforms, formerly known as Facebook. Up 41% so far this year, Meta has leveraged its vast troves of user data to become an AI advertising powerhouse. The company has developed a suite of generative AI tools for marketers that automate the creation of optimized ad copy, image renditions, and audience targeting.

“Creating compelling ads and campaigns used to take hours of grunt work,” said Katelyn Fine, a marketing manager at online styling service Stitch Fix. “With Meta’s AI tools, I can generate a hundred versions with the press of a button. It’s a game-changer for efficiency and performance.”

Meta has also staked out a foothold in the AI model industry. Their open-source AI model LLaMA has become one of the most widely used Large Language Models available on cloud platforms, providing a new revenue stream.

In the most recent quarter, Meta reported revenue grew 25% and profits more than tripled thanks to the AI-powered tailwinds propelling their ad sales. “We’re just starting to scratch the surface of AI’s potential for marketers and our business,” said Mark Zuckerberg, Meta’s CEO.

E-commerce and cloud juggernaut Amazon has also cemented its position among the Fab Four tech elites in 2024 thanks to their aggressive push into AI services and models on their cloud platform AWS. Early skeptics had argued Amazon was late to embrace AI. But through a combination of launching theirown AI models like Titan on AWS as well as partnerships with leading AI firms like Anthropic, they’ve quickly made up ground.

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“Amazon just went ahead and bought a first-class seat on the AI train,” said Mike Furtney, an industry analyst at Voices in AI. “They identified the opportunity, surrounded it through these strategic deals, and now can match if not exceed competitors’ AI offerings.”

Amazon’s headlining AI move was taking a $4 billion stake in startup Anthropic to get access to their powerful AI model Claude as well as future models. Benchmark testing has ranked Claude among the highest-performing systems to date.

While AI likely provided a boost, Amazon’s financial performance really demonstrated the breadth of their competitive strengths. In the most recent quarter, revenue grew 14% while profits increased over 30-fold thanks to thriving segments like e-commerce, cloud services, and advertising. Amazon’s 19% stock gain in 2024 has lagged the other Fab Four members but still handily outperformed the broader market.

Rounding out the Fab Four is Microsoft, who has added 12% to their stock price in 2024. The century-old tech titan has closely tied their innovation efforts in AI to enhancing their massively successful cloud and productivity software offerings. Their partnership with OpenAI has led to AI co-pilot assistants being integrated across Microsoft 365 apps to automate workflows and content creation.

“With Copilot, our creative team can rapidly explore a kaleidoscope of ideas from AI and pick the best bits,” said graphic designer Sandra Rollins. “We’re getting exponentially more concepts onto the table to wow our clients.”

Microsoft has also opened up all the major third-party AI models like GPT-4 and Claude on their Azure cloud to maximize customer accessibility. Demand for Azure services from enterprises adopting AI drove over 6 percentage points of revenue growth in the most recent quarter.

In their earnings report, Microsoft’s cloud division saw revenue spike 28% while total revenue grew 18% and profits jumped 33% from a year ago. CEO Satya Nadella proclaimed that “the AI race is on, and Microsoft is leading the pack.”

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So what about the three laggards – Tesla, Apple, and Alphabet – who have fallen out of the elite Fab Four? While still technology behemoths in their own rights, they’ve been weighed down by a culmination of factors in 2024.

For Tesla, sales growth has been sluggish as competition from traditional automakers’ EVs heats up globally. They’ve been hamstrung by production issues from their Chinese factory amid the country’s economic turmoil. Tesla’s 33% stock decline in 2024 has been exacerbated by concerns over CEO Elon Musk’s distractions with Twitter.

Apple has seen iPhone demand soften somewhat while also getting ensnared in a high-stakes antitrust lawsuit pursued by the U.S. Department of Justice over their strict App Store rules. Revenue growth has slowed to a trickle as it contends with heightened competition from Chinese vendors like Oppo and Xiaomi. With a 12% drop so far this year, some investors are questioning if the best days are behind the consumer hardware titan.

Alphabet rounds out the former Magnificent Seven down just 11% in 2024, aided by its sizable AI research arm and popular AImodel releases like LaMDA and Gemini. But digital advertising growth has decelerated for Google while their alleged monopoly over internet search faces regulatory shackles. A looming AI antitrust lawsuit from the DOJ overhangs the tech giant.

While the techlash has dragged down some of the former Magnificent Seven members, the Fab Four have only solidified their dominance.”We’re still in the very early innings when it comes to generative AI impacting businesses and consumers’ lives,” said Dan Ives of Wedbush Securities. “The Fab Four are in the pole position to translate AI into financial windfalls over the years ahead. For investors, these are the elite horses to bet on.”

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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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