These ‘Magnificent Seven’ Stocks Will Remain Great Buys in AI, Despite the Selloff

Artificial intelligence (AI) has captivated investors since ChatGPT burst onto the scene with its viral popularity in early 2023. Since then, big tech companies, often referred to as the “Magnificent Seven” stocks, have been battling it out with massive investments in AI and rising growth expectations that have driven the broader stock market to new highs.

But lately, volatility has returned to the markets and many of these flagship stocks have been sold off after reaching their peaks.

Remember, volatility is a feature of investing, not a problem. No one knows how stock prices will perform in the short term, but falling prices could be a great long-term buying opportunity for good stocks.

Which The actions of the Magnificent Seven What should investors focus on? Here’s a prediction: Meta-platforms (NASDAQ:META) And Microsoft (NASDAQ: MSFT) will emerge as the AI ​​stocks everyone would have loved to buy during this sell-off.

Here’s why.

Meta is one step ahead in the AI ​​race

Social media giant Meta Platforms arguably has everything a company needs to build a dominant business around artificial intelligence (AI). It takes a ton of data to train AI models, and Meta has a ton of first-hand data on the 3.27 billion people who log into Facebook, Instagram, WhatsApp, or Threads every day.

AI models require enormous computing power. Nvidia has enjoyed huge success as a the reference supplier for AI chips. Meta has accumulated nearly 600,000 of Nvidia’s flagship H100 GPUs and is designing its own custom chip.

Finally, Meta has developed its own AI models. Llama is Meta’s big language model, which it implements in all its applications and makes available for other developers to use. Add all of this up, and Meta is building an AI ecosystem over which it has complete control.

Few AI technology companies can do everything they can like Meta. For example, Nvidia’s chips have a specific function in AI: computing. Apple enjoys excellent distribution via iOS devices, but has sought help from OpenAI’s AI models. Alphabet has similar benefits to Meta, but it faces regulatory scrutiny because of its monopoly on Internet search.

Meta’s best part is that it’s already a great company that AI is making even better. Meta, already a force in digital advertising, has launched AI tools for clients that improve ad effectiveness by helping match ads to their target audiences. Ad impressions increased 10% year over year in the second quarter, but the price per ad also increased 10%. Meta already generates $150 billion in annual revenue, and analysts estimate it will grow at double-digit rates over the next four years.

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Investors should view any sell-off as a long-term buying opportunity. The stock’s valuation already appears reasonable, so investors don’t need to be too picky. Shares trade at about 25 times Meta’s estimated 2024 earnings, and analysts estimate that earnings will grow at a 19% annualized rate over the next three to five years. The resulting PEG ratio of 1.3 indicates that the stock is borderline cheap relative to its expected earnings growth, which is good news.