Magnificent 7 Stocks: Are They Still a Buy? (Q1'2024 Earnings Special) [UPDATED!]

In 2023, the "Magnificent 7 stocks" — NVIDIA, Meta, Amazon, Microsoft, Alphabet, Apple, and Tesla — performed exceptionally well, with their shares rising an average of 112%.

As we move toward the half-year mark of 2024, these questions arise: Will this trend continue? Can they sustain their growth run? What does the forecast for 2024 hold for the Magnificent 7? Are Mag 7 stocks still a good buy?

The Magnificent 7 Stocks

Source: TradingView, accurate as of 22 May 2024

So far, in the first five months of 2024, NVIDIA and Meta are still seeing significant gains, Apple and Tesla are underperforming the index, indicating a varied performance among these tech giants.

Earlier last year (September 2023), we published an analysis about the Magnificent 7, nine months later and here’s our report card. 

Accurate as of 22 May 2024.

From a bird’s eye view, companies that we deemed undervalued have gone on to deliver substantial gains of between 30 to 50% (like Amazon, Alphabet and Meta).

Those that we thought were fair valued performed in line with expectations (although Microsoft still trades at a premium, as expected).

Lastly, for those we thought were overvalued – there was a hit and a miss.

Overall, we had 4 wins, 1 neutral & 2 not so ideal. Not too bad if you were to ask me. 

For investors that want a brief understanding of the business fundamentals and calculations around their valuations, the previous analysis of the Magnificent 7 is still a good start.

In this article however, we would like to put more emphasis on their 2024 Outlook, particularly their most recent earnings in Q1 of 2024. 

Is Tesla (TSLA Stock) Still a Good Buy?

Tesla was the first of the Magnificent 7 pack to report their Q1 earnings. The results? Not good.

They missed revenue estimates by 4.3% – and this came on the back of price cuts, vehicle mix-sift to lower-priced models, a high rate environment and an overall weak macro environment. 

These are the five key points you need to know:

1. Ugly is an understatement for Tesla’s recent results. Although the potential of Tesla still remains (like self-driving, energy, robotics, etc.), there was not much to show for as most of their revenue still comes from cars. Car sales are extremely rate sensitive, and the macro environment doesn't seem to favor high-ticket purchases for now.
   
   
2. Tesla is committed to reinvesting for the future. They’ve committed to spend about USD 10 billion this year on training and inference artificial intelligence. In the short term, as seen in the recent quarter – Tesla’s free cash flow swung to negative $2 billion v.s. the expected $1 billion.
   
   
   
3. Tesla is accelerating the release of its new vehicles to the first half of 2025, which includes the rumored $25,000 mass market model. Musk has alluded to the unveiling of the Tesla Robotaxi on 08 August later this year.
   
   
   
4. Elon Musk told investors on the call that automobile revenue growth would be better than 0% in 2024. It’s quite interesting how the narrative has flipped, and we are getting excited about a positive revenue growth story for a company that was once compounding at a 50% clip. That said, we do think that this will act as a near term bottom for their growth estimates – and as they said, when you’re at rock bottom, the only way is up.
   
   
5. Tesla is making a strong case for Full Self-Driving, being close to completion. Its newer FSD Version 12 currently uses end-to-end neural networks and a vision-only approach to emulate how a human thinks and drives. They’re currently in late-stage discussions with a “major legacy automaker” to license FSD. 

Our Tesla (TSLA) Stock Analysis

Our view on Tesla remains relatively the same. Tesla is still the same exciting company with lots of potential and optionalities today. If we do not consider the exciting potential – then investing into a company in the automotive industry is nothing to shout at. Cut-throat competition, high maintenance capex, low margins are NOT qualities we look out for. 

Furthermore, much of their potential stays as potential – with not much to show for yet, especially in this high rate environment. If you believe Tesla to only be a car company, then today’s valuation would not make any sense. On the flip side, if Tesla is really able to disrupt the entire transport and energy business, then we have to reconsider everything. 

Compared to three years ago, we think that the market has adjusted their expectations significantly – and those who do buy into the company’s vision and potential might look at this as a bargain. For us, even if we do believe in the future and potential of Tesla – investors might want to consider taking a calculated bet, and limit exposure to this investment at an appropriate and comfortable level. 

Is Meta Stock Still a Good Buy?

Meta has had one of the greatest recovery stories, rallying from the lows of $90 per share to nearly $500 per share in 18 months. Meta continued to deliver strong results in the first quarter, but the market didn’t take it too well (probably because of high expectations baked into the valuation pre-earnings). 

These are the five key points you need to know:

1. Meta’s advertising is as strong as ever. Ad Impressions rose by 20% YoY. Price per impression rose by 6%, and it’s improving across all geographies. This quarter might be the best yet for Meta Platforms.
   
   
2. Meta was never shy of announcing their plans for reinvestment – and this quarter was no different. They raised their operating expense guide by 1% and capital expenditure guide by 11%. Furthermore, they mentioned that their 2025 CapEx spend would rise on this higher base.
   
   
3. The main factor driving the next phase of Meta’s investment? AI. Were you really expecting anything else? As Zuckerberg puts it, “Success is leading me to believe we need to invest more in advanced models and services… We’ve proven we can build leading models, so we’re going to go for it”.
   
   
4. AI has already demonstrated their use case in Meta’s core offer. The AI recommendation engine is helping to increase retention and engagement from its users. AI-based discovery content now makes up more than 50% of all Instagram engagement. AI models are better at targeting (especially after the Apple software update).
   
   
5. AI is helping to automate campaign creation, saving cost to the advertisers – and most importantly, increasing the return on ad spend for buyers. GenAI was a game changer.

It's interesting how many of the “risk factors” that were once bear arguments around Meta’s economic moat have slowly evaporated in the last 24 months. It overcame Apple’s data restriction, TikTok’s competition, falling users, frivolous spending and mindless investments, inability to monetize platforms and the list goes on. 

The new fear? This renewed investment cycle into the forays of AI, with its uncertain return on investment – may hit the free cash flow of the business in the short term.

Our Meta Stock Analysis

We still hold the long-term view that Meta Platforms is one of the highest quality companies in the public markets. Its strategic execution and investments have driven strong yield and return on investments, reflected in their financial performance. Recent quarters have shown strong fundamental improvements, and despite the recent rally, Meta still presents a compelling investment opportunity at the right price.

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Is Alphabet (GOOG Stock) Still a Good Buy?

In Alphabet’s most recent earnings, they’ve delivered strong results on both YouTube revenue and the Google Cloud segment — both exceeding 20% growth year-on-year, despite their size. 

These are the five key points you need to know:

1. Google Cloud Platform (GCP) has been the underdog when compared to its Microsoft Azure and Amazon Web Services (AWS) counterparts. There was a point in time when investors were questioning whether the GCP even had an advantage. This recent quarter? Google Cloud delivered the strongest growth (~26%YoY), easily leaping AWS (17% YoY) and Azure (21% YoY). They disclosed that both YouTube and Cloud will hit a $100 billion revenue run rate by end-2024.
   
   
2. Alphabet has transitioned into the life cycle of returning capital to shareholders, as they added another $70 billion in their buyback program and introduced their first ever dividend ($0.20 per share). At a 2.2T market capitalization and $178 per share, this is not substantial, but it does signal to investors on their capital management policy moving forth.
   
   
3. Alphabet shared similar developments (like Meta) around the monetization of GenAI into the advertising campaign capabilities. Gemini was added to Performance Max (Google’s campaign creation service). Advertisers using this tool are 63% more likely to design a “good or excellent” ad campaign, which yields a 6% boost to conversions.
   
   
4. Similar to other tech companies, they have guided for an increased investment into the future (where capital expenditures would stay at, or go above $12 billion spent in Q1 of 2024, which is nearly 2x of that in Q1 of 2023).
   
   
5. Alphabet iterated their commitment to maintaining efficiency and optimizing their cost structure by combining teams and expensing depreciation diligently. On the topic of Google’s position in the GenAI era, the response from Sundar (CEO of Google) was simple — “We always felt confident and comfortable”. 

Our Alphabet (GOOG) Stock Analysis

This was generally a very solid quarter for Alphabet as they crushed many concerns around the relevancy of Search and the competitiveness of Cloud. The advertising industry remains stable with strong demand, benefiting the top players in the sector. They have also made it clear to investors that they are following through with higher Capital Expenditure spend, but keeping their commitment to optimize and stay efficient. 

From a long-term investment point of view, we don’t shy away from investment cycles – but in fact think that making products and offers more competitive is key to deepening their moat – and Google is doing exactly that. Despite Alphabet’s recent run, we feel comfortable with the prospect and direction Alphabet is heading with advertising, cloud and most importantly their AI strategy. We do think that Alphabet today is still an attractive investing proposition. 

Is Amazon (AMZN Stock) Still a Good Buy?

Amazon has been one hell of a recovery story — from minus $20 billion in Free Cash Flow, to currently churning $50 billion on a trailing twelve month basis (and still increasing). 

These are the five key points you need to know:

1. Amazon’s earnings margin trend is expanding at a mind-boggling rate. Two years ago, in Q1 of 2022, EBIT (Earnings before Interest and Taxes) margins were hovering at 3.2%. In the latest quarter? It had tripled to 10.7%.
   
   
2. Amazon is leaning heavily into harnessing GenAI capabilities with Amazon Q. It is a software assistant designed to generate, debug and translate code. It analyzes existing infrastructure, creates a plan for optimization and implements it. Although it is still at a nascent stage, there is great potential here.
   
   
3. Demand across most of Amazon Web Services (AWS) offerings remains strong. That said, like all their competitors, they disclosed that Capex (Capital Expenditures) will materially grow in 2024, stating that the $14 billion expensed in Q1 is a low point, suggesting a much stronger spend in the quarters ahead.
   
   
4. Advertising remains an underdog in Amazon’s empire, growing at a strong 24% year-on-year. There is still a very long runway ahead for Amazon to catch up to the position of the advertising giants.
   
   
5. Amazon did caveat their growth plans, stating that they are aware of the balance that they need to strike between growth and profits (i.e. do a better job compared to 2021), and they reiterated that they don’t spend capital without very clear signals that they can monetize it.

Our Amazon (AMZN) Stock Analysis

We hold steadfast in our conviction that Amazon is still a phenomenal business that any serious investor should consider to own (but of course at the right price). They seem to be firing on all cylinders with no holds barred. 

Their leading position in both eCommerce and Cloud will stand to gain massively as the total pie continues to expand. Amazon’s immaculate ability to constantly find new growth engines and opportunities has once again charmed Wall Street, and we don’t believe that this will stop anytime soon. 

Is Apple (AAPL Stock) Still a Good Buy?

Apple faced several challenges at the beginning of 2024 – including declining demand in China, reconfiguration of its supply chain, cancellation of its electric car plans, and a delayed entry into the AI market. 

These are the five key points you need to know:

1. Apple’s revenue fell -4% YoY, highlighting worries amongst the investing community on their likely growth path ahead. More importantly, this lackluster performance was dragged down by the Chinese demand. It was reported that iPhone sales fell by 19.1% in the first three months of the year.
   
   
2. US smartphone shipments also fell -10% year-on-year, as consumers voiced their resistance to upgrade due to the limited performance improvements between generations, and also the tightening financial conditions amongst consumers.
   
   
3. Apple’s push to diversify its revenue stream seems to have received some level of success as they achieved an all-time revenue record in Services. This stream of income seems to be much more reliable (even in times of adversity) and consistent.
   
   
4. Despite slowing growth rates, Apple has announced a historic share buyback program, authorizing an additional $110 billion for shares repurchases – concretizing management’s confidence in their future and value they see in their stock.
   
   
5. Apple will wind down its team working on electric cars, and many of the staffers will be shifted to the artificial intelligence division – which had not made much progress when compared to their other Tech counterparts.

Our Apple (AAPL) Stock Analysis

From a business standpoint, the quality of Apple’s brand remains relatively strong. That said, despite their efforts to grow out their other business verticals – they are still very reliant on their hardware sales. Unfortunately, the hardware side of the business is facing pressures from multiple fronts.

On the point of China's waning demand, we have seen the company taking active steps to curb this phenomenon with decent success – and their smartphone shipments in China rose 52% in April from a year ago. Sales may see a further boost in May as Apple launched an aggressive discounting campaign on its official Tmall site in China. 

We err on the side of caution when looking at Apple’s current business (particularly its future growth prospects), and would need some time to monitor their development. But we still hold the opinion that Apple has one of the most desirable moats a brand would hope for. 

Is Microsoft (MSFT Stock) Still a Good Buy?

Microsoft is the King of Software. No one comes close. In their latest earnings, they’ve proven to investors once again that they’re stable, reliable, and one of the safest companies to own. 

These are the five key points you need to know:

1. Microsoft Azure is pulling its weight, delivering growth rates of well above 20% despite its size (and slowly chasing up to AWS). Their commercial bookings rose by 29% year-on-year, and this was due to larger and longer Azure contracts (suggesting strong demand and loyalty).
   
   
2. Microsoft has optimized its cost structure over the year, and margins have expanded meaningfully. Compared to the same quarter a year ago, EBIT margins grew from 42.3% to 44.6%, Operating Cash Flow margins expanded from 46.2% to 51.6%, and Net Income margins rose from 34.6% to 35.4%.  
   
   
3. Microsoft provided commendable guidance, with Azure maintaining a minimally 30% growth rate despite some constraints they are facing currently. Revenue is also expected to remain strong (~+10% YoY for 2025) — although there might be potential headwinds due to foreign exchange.
   
   
4. Like all Big Tech companies, Capex will rise meaningfully to support infrastructure investments to squeeze more productivity from this new wave of AI capabilities. To understand and appreciate the extent, Capex this quarter rose by 80% year-on-year to reach $14 billion.
   
   
5. Microsoft has been the MOST aggressive in deploying and monetizing their suite of GenAI capabilities — riding on the distribution in the cloud and software. This go-to-market strategy has allowed Microsoft to always be the first to feedback, iterate, and test their offer again. 

Our Microsoft (MSFT) Stock Analysis

Our take on Microsoft has remained steadfast. They ARE one of the strongest businesses we’ve seen in this decade. King of Software, a portfolio across hardware, software, gaming, cloud and even AI. Some investors look at Microsoft as an exchange-traded fund due to its diversified nature. 

To us, we see great stability and comfort with Microsoft’s execution and delivery. For investors looking at holding for the really long term – we do think that Microsoft is in the slightly undervalued to fair value range. We continue to love this name. 

Is NVIDIA (NVDA Stock) Still a Good Buy?

NVIDIA has never failed to amaze investors – and this time is no different. 

These are the five key points you need to know:

1. NVIDIA has experienced three straight quarters of 200%+ revenue growth rates – driven by the technological transition of the world today. Their data center revenue is at the heart of this explosion in demand, and they’ve quadrupled on a year-on-year basis.
   
   
2. The major cloud providers (AWS, Azure, GCP) are in this arms race towards building the best AI platform, and they have since become major customers for NVIDIA’s chips. Most of these tech companies have pledged an incredible amount of Capex increase for the following quarters.
   
   
3. NVIDIA’s financials have never been better. On top of the monstrous growth rates, the shortage in chips have driven up the prices, benefitting NVIDIA’s margins and growth directly. Compared to two years ago, NVIDIA’s margins skyrocketed from 65% to 78% in the same quarter.
   
   
4. Jensen Huang (CEO of NVIDIA) responded to a question in the call, saying that the company’s Blackwell chip should produce ‘a lot of revenue’ this year – further assuring investors that the growth path ahead for the company remains bright and strong.
   
   
5. NVIDIA has announced a 10 for 1 stock split, coupled with a significant increase in its dividend payout.

Our NVIDIA (NVDA) Stock Analysis

The opinions on NVIDIA amongst the team remains split. We all acknowledge that the fifth revolution has (probably) begun, and NVIDIA is at the heart of it. 

There are many factors working in NVIDIA’s way today; from a significant step-up in demand from all major players, to the mass adoption of AI-related tools across industries, to the limited supply, etc. Of course, there are inherent factors that make NVIDIA the superior solution, such as their CUDA platform, software-hardware integration, versatility of their chips and the developer’s ecosystem and support they’ve created thus far. 

That said, we should not forget that the semiconductor industry is still one that is highly cyclical. Would this time be different because of AI? We can’t be sure, time will tell. However, the valuation of NVIDIA is justified today – if they can continue to deliver on such spectacular results. 

The biggest concern? We might have visibility of the demand for NVIDIA’s chip for the coming 12 to 18 months, but it is anyone’s guess thereafter.

Magnificent 7 Stocks 2024 Predictions

*Disclaimer: Nobody is able to predict the future (us included), so treat this as our educated opinion only, and we can check back on how we fare in the future. Be sure to do your due diligence before making any investment.

On Tesla, we’ve always loved the execution, and have a tremendous amount of respect for the team. From an investment perspective however, being in an automotive industry is a big turn-off. Until there is significant-enough progress made in disrupting the energy, transport or robotics industry, we will be staying away from the stock. That said, considering the sentiments and expectations priced into current valuations (~$180 per share), it might not be the worst deal, especially with the potential prospect the company possesses. 

On Meta, we’ve established that Zuckerberg is a shrewd executive and investor. They have time and again proved naysayers wrong – emerging stronger than ever. The level of sophistication across their platform business, scaling users, optimizing cost, monetizing properties are world-class. We’ve caught ourselves raising our price target for Meta multiple times now, as we continue to be impressed with how they’ve such an amazing run with this social media business. Even today, after its historic run, we do find compelling value to add to our position (but would be more excited for a pullback)! 

On Alphabet, we’ve loved the monopoly position since the start. Interestingly, many investors fear this dominance, worried about potential competition (from all fronts). ChatGPT was one that came close to dethroning Search, but it hasn’t significantly impacted Google’s lead. Additionally, strong results from their Cloud division highlights Alphabet’s growth potential, making it an attractive stock with great potential – even at today’s valuation – and we do still think that it is undervalued. 

On Amazon, we’ve been huge fans of the management’s philosophy even until today. Amazon will always seem expensive if we were to judge them using traditional financial metrics like the PE ratio – but Amazon never fails to create greater economic value through their reinvestments. Sitting on two strong tailwinds of this decade (eCommerce and Cloud), we believe that there is still tremendous growth runway ahead and like Jeff Bezos (founder of Amazon) puts it, it’s always Day 1. We still hold the opinion that Amazon is full of potential and potentially undervalued when you look at it as a long-term investment. 

On Apple, we love the brand, we love the ecosystem, we love the management, and most importantly, how they treat shareholders. However, we are critically aware of the momentary hit in growth rates and the slew of worries coming out from China – which will require some time to monitor. If you see past this worry – Apple is still a very strong company with a huge economic moat. 

On Microsoft, it’s arguably the BEST company to own in the stock market right now. It’s diversified, it’s recession-proof, it’s (arguably) the first to the AI game, it has one of the largest distribution networks in the world and the list goes on. It seems like Microsoft can do no wrong, for now, and it is not trading at egregious valuations either. We do look at Microsoft as a great stabilizer to any portfolio – and deem it to be near fair value territory, and some might consider it to be slightly undervalued. 

On NVIDIA, it’s the darling of Wall Street. Every investor seems to be piling onto this name, as it is crowned as the Vanguard of this new paradigm shift. The valuation of NVIDIA can be easily justified if they can sustain this level of demand. For now, the bulls and bears are split in the middle – both assessing how NVIDIA’s demand would grow after 2025.

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