The "Magnificent Seven" Emerge as Market Powerhouses Amidst 2023's Bull Run
The "Magnificent Seven," a term now synonymous with stock market exuberance, has been setting the pace since the onset of 2023, outperforming the S&P 500 with significant margins. This elite group comprises technology and innovation giants such as Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla. Their collective prowess has not only captivated investors but also underscored a pivotal shift towards sectors driving the future economy. However, amidst this glittering ensemble, not all shine with the allure of a strong buy—at least, from my vantage point.
Artificial Intelligence (AI) ambitions unify nearly the entirety of the "Magnificent Seven," yet my rationale for endorsing a select trio diverges towards an age-old dominion: Advertising. The advertising industry’s colossal financial ecosystem renders Alphabet, Amazon, and Meta Platforms as my stocks of choice, propelled by their astounding quarterly advertising revenues.
- Alphabet: $65.5 Billion
- Meta Platforms: $38.7 Billion
- Amazon: $14.7 Billion
In the final quarter analysis, while Alphabet and Meta stand as the uncontested monarchs of advertising revenue, Amazon emerges as a formidable contender, showcasing a 27% year-over-year growth in advertising services—its fastest growing segment. Meanwhile, Meta displayed commendable resilience, posting a 24% increase in advertising revenue year over year. Alphabet, although trailing with an 11% growth rate, retains its relevance through sheer volume and market penetration.
The advertising market's recovery, further bolstered by diminishing recession fears, assumes pivotal importance. Companies with heavy advertising portfolios, particularly Meta and Alphabet, have commenced reaping the rewards of an uptick in ad expenditures. Amazon, distinct in its trajectory, maintained consistent ad revenue growth, attributed to the nascent stature and ongoing expansion of its advertising capabilities. The improving ad market positions these entities as lucrative investment avenues.
Valuation metrics reveal an additional layer of attractiveness for these Magnificent Seven constituents. Favoring the forward price-to-earnings (P/E) ratio for gauging Alphabet and Meta, alongside the price-to-sales (P/S) ratio for Amazon, elucidates their investment appeal. Amazon, despite a forward P/E of 44, still offers room for growth before achieving its pre-pandemic valuation zenith, marking it as an opportune buy.
In essence, the confluence of an ascending advertising sector and enticing valuation metrics render Alphabet, Amazon, and Meta Platforms not just as participants in the Magnificent Seven's illustrious rally, but as standout selections for discerning investors looking towards the future.
Analyst comment
Positive news. As an analyst, I predict that the market will continue to be bullish as the “Magnificent Seven” tech giants, particularly Alphabet, Amazon, and Meta Platforms, dominate the advertising industry and continue to experience growth. Their strong advertising revenues and attractive valuation metrics make them attractive investment opportunities.
