The "Magnificent Seven" have an exciting 2023 performance, significantly outperforming major U.S. stock indexes, with some stocks boosted by developments related to artificial intelligence (AI), but experts say the AI journey for these market leaders has just begun, with more innovation expected in the AI field in 2024.
The “Magnificent Seven Sisters” will become the driving force behind U.S. stocks in 2023
Bank of America analyst Michael Hartnett coined the term "The Magnificent Seven" in 2023 - referring to a group of outperforming U.S. technology giant stocks, including Microsoft (MSFT.US), Amazon (AMZN.US), Meta (META.US), Apple (AAPL.US), Google parent Alphabet (GOOGL.US), Nvidia (NVDA.US) and Tesla (TSLA.US).
The U.S. stock market experienced a dismal performance in 2022, with the S&P 500 index recording its worst performance since the Great Recession. However, driven by the "Magnificent Seven Sisters", U.S. stocks staged a stunning recovery in 2023, with the index rising by more than 24% entering the last trading week of the year. Nvidia's shares have more than tripled since the start of 2023, while Meta and Tesla's shares have more than doubled. Over the same period, Amazon has gained 80%, while Apple, Alphabet and Microsoft have gained nearly 60%.
The other 493 stocks in the S&P 500, what Horizon Investments research director Mike Dickson calls the "weak 493," were up a combined just 7.5% through early December, according to the firm's research. Dickson noted that the outperformance of these tech giants over their peers in the index was also "driven in large part by the potential of artificial intelligence."
What is the prospect of the "Magnificent Seven Sisters" in 2024?
Experts predict that the "Magnificent Seven Sisters" may gain more in the new year due to the booming development of artificial intelligence. UBS analysts said in a research note that an unusual feature of generative AI is that many of the same companies that started with this new technology are already operating at multiple stages of the value chain - from cloud computing to ownership of large language models (LLMs) to the development of end-user applications. The Magnificent Seven have “significant resources needed to build and benefit from complex AI models,” and UBS “expects the large players to become even bigger.”
Shares of tech giant Microsoft are up nearly 60% this year, hitting multiple all-time highs in 2023, driven in part by interest in artificial intelligence. As an early giant in the AI boom, in addition to providing its own artificial intelligence tools and hardware, Microsoft's cooperation with OpenAI, the maker of the generative AI tool ChatGPT, has also aroused great interest from investors. Microsoft has firmly established itself as a leader in the AI race through its "billions of dollars of investment over many years to accelerate AI breakthroughs."
Analysts say the company's AI progress and announcements are also unlikely to slow down in 2024, especially on the back of its OpenAI partnership. Wedbush analysts, for example, noted that Microsoft "is essentially the torchbearer of the global AI revolution," adding that the bank sees the next wave of cloud and AI growth coming in 2024, which its stock price has yet to reflect. OpenAI's "ChatGPT will be the next pillar of Microsoft's growth" and "ultimately spur" growth and margins in fiscal 2024.
Shares of Google parent Alphabet have risen nearly 60% in 2023 amid enthusiasm about the company's advances in artificial intelligence, including the launch of chatbot Bard and large language model (LLM) Gemini. Bard was released in February of this year to an unimpressive launch, although the chatbot made a factual error in its first public demo, and has since gone through several updates to make it a viable competitor to ChatGPT. In early December, Google launched its own LLM artificial intelligence model, Gemini, which reportedly performed better than OpenAI's GPT-4 model.
CFRA analyst Angelo Zino said that Google "may still be one step behind Microsoft/OpenAI" but "artificial intelligence is advancing very quickly." He added that CFRA "believes that future upgrades to Gemini will enable Google to keep up with its competitors and become a major beneficiary of artificial intelligence." Google said it will launch "Gemini Ultra" after further fine-tuning, which is "the largest and most powerful model for performing highly complex tasks" and will power "Bard Advanced" in 2024. JPMorgan analysts also called Google the "new top pick" as Gemini narrows the gap with GenAI.
"Artificial intelligence is more of a 2024 story," CFRA analysts said. They noted that when looking at Google's prospects in the new year, CFRA "likes plans related to Bard, Gemini and Search Generative Experience."
Amazon's stock price is up more than 80% in 2023 as the e-commerce giant makes progress in artificial intelligence. Notably, Amazon began offering Bedrock through its cloud computing platform, Amazon Web Services (AWS). Amazon says Bedrock is "a fully managed service that helps build and scale generative AI applications using the AI company's leading foundational models through APIs and developer tools." In November, Amazon also launched its GenAI Assistant Q, available through AWS, as well as its next-generation custom AWS chip optimized for GenAI.
Similar to Microsoft, Amazon is solidifying its AI position by investing billions in a company already successful in the technology. Amazon said it will invest up to $4 billion in artificial intelligence company Anthropic, a move that could allow the company to better compete with Microsoft-backed ChatGPT and Google's Bard.
When asked about reports that Amazon is developing a large language model (LLM) called Olympus, AWS CEO Adam Selipsky told the media that they should "expect to see multiple iterations of Amazon's first-party model." Selipsky also noted that he believes there will be "very rapid evolution and change" in 2024 as technology develops and enterprise integration is optimized.
JPMorgan analysts predict that "growing contributions from GenAI" could support AWS' growth in the new year. In addition to its artificial intelligence projects, Amazon is also expected to perform positively in 2024, with J.P. Morgan analysts naming it a "top large-cap stock" in the Internet sector. JPMorgan analysts expect Amazon's revenue to grow in the new year, driven by reacceleration in Amazon's retail and AWS businesses and expansion of profit margins.
Even among these seven giants, Nvidia is the main beneficiary of the artificial intelligence boom in 2023, with its stock price fluctuating the most compared to other companies. Nvidia's stock price posted double-digit gains in a single day several times during the year. On May 25, shares soared more than 24% from the previous day's close after the company reported a "surge in demand" for its products and first-quarter earnings that beat expectations.
As companies scramble to build AI models and integrate AI tools, Nvidia's chips are used to power much of the technology. Bank of America analysts wrote that as an upstream company in the AI field, the chipmaker's dominance in artificial intelligence training may account for more than 90% of the market share. In November, Nvidia released its most powerful graphics processing unit (GPU), the H200, designed to power artificial intelligence models. The new chip will be used by other systems including Amazon, Google and Microsoft.
Analysts have been steadfast in their belief that the chipmaker's gains from the artificial intelligence boom will drive earnings at a time when some worry about the impact of U.S. restrictions on exports of AI chips to China on Nvidia's profits. Jefferies analysts said Nvidia may be in the "sweet spot" compared to rivals such as Intel (INTC) and Advanced Micro Devices (AMD), which they named the company's "franchise pick." Wedbush analysts said that although other chipmakers such as AMD and Intel have made progress in getting a piece of the pie, Nvidia "ultimately will be the winner."
Meta shares nearly tripled in 2023 as Facebook parent company joins AI push. In February this year, the company introduced the large language model LLaMA. Since then, Meta has used its artificial intelligence technology to improve its algorithms and advertising systems. The company said in a press release: "Artificial intelligence is a fundamental building block of Meta applications and services, improving performance, measurement and campaign setting." The company's CEO Mark Zuckerberg said that artificial intelligence recommendation tools have driven an increase in the time users spend on the Meta platform.
CFRA analysts said Meta's "AI efforts to date have been to improve its recommendations/rankings and power the entire ecosystem," but "over time, Meta could monetize AI through its Llama2, AI agents, and virtual worlds." CFRA is “more optimistic about Meta’s move to build a content-driven discovery platform.”
Tesla's stock price has nearly doubled in 2023, and although the electric vehicle pioneer hasn't launched many major artificial intelligence projects, the company is no stranger to the technology, as Tesla's self-driving cars rely on artificial intelligence technology. Tesla CEO Elon Musk also bluntly stated that artificial intelligence is "the most disruptive force in history" and even said that "there will be a moment in the future when work will not be needed...artificial intelligence will be able to do everything."
In July this year, Musk launched xAI, a company focused on artificial intelligence. While x.AI is its own independent company, it will "work closely" with X (formerly Twitter) and Tesla. In November, the company launched Grok, an artificial intelligence chatbot, although the product is not yet widely available.
However, the new year may be a challenging year for Tesla, and Bernstein analysts even said that shorting Tesla may be the "best option" in 2024. Bernstein said he expects the electric vehicle pioneer may "disappoint investors" in the new year due to "Tesla's narrow (and expensive) product lineup approaching saturation and continued competition in the electric vehicle space."
Apple may not have released its own artificial intelligence chatbot like other giants, but the tech giant confirmed that it is working with artificial intelligence technology, sending its stock price up nearly 60% in 2023. Apple "will continue to incorporate this into our products on a very thoughtful basis," CEO Tim Cook said during an earnings call in May. Apple is also reportedly working on a chatbot that may be released at a later date.
Although Apple is less involved in the artificial intelligence race, analysts say the tech giant is on track to become profitable in 2024, especially if the iPhone 15 bolsters its holiday sales. Wedbush analysts said that the next fiscal year is a "golden opportunity" for Apple investors. He said that "there are currently about 240 million iPhones worldwide in the upgrade window for iPhone 15 and services" - Wedbush estimates that it is "worth $1.5 trillion to $1.6 trillion in individual calculations" and will "reaccelerate" by 2024.