A Research Company Places Nvidia and Alphabet at the Peak of Its "Wonderful Seven" Investment Picks for 2025. Should Investors Consider Purchasing Shares in Both Companies?
Analysts at Jefferies have ranked the "Magnificent Seven" picks, a group of leading tech stocks, predicting which ones will outperform in 2025. These mega-cap tech titans, which have helped steer the market's upward trajectory, include Nvidia, Alphabet, Meta Platforms, Apple, Amazon, Tesla, and Microsoft.
Jefferies' top picks were Nvidia and Alphabet, primarily due to strong growth potential, attractive valuations, and favorable analyst sentiment. As for Nvidia, its growth is phenomenal, with projections for more than 50% sales growth in 2025. Additionally, the tech giant boasts a forward price-to-earnings ratio (P/E) below 33 times and a price/earnings-to-growth ratio (PEG) of 1, providing a solid case for undervaluation.
Nvidia's growth is fueled by its remarkable success in the artificial intelligence (AI) sector. The company's graphics processing units (GPUs) have transformed into the backbone of AI infrastructure due to their superior processing speeds, establishing a wide moat through its CUDA software platform. This shift has assisted Nvidia in capturing nearly 90% of the GPU market share.
Meanwhile, Alphabet, marketed by the tickers GOOGL and GOOG, offers a more modest growth outlook than Nvidia, but it boasts a lower valuation, making it appear undervalued. Analysts projected solid revenue growth of 15% for Alphabet last quarter, with profits soaring by 34% and earnings per share climbing 37%. These figures were primarily driven by the company's cloud computing division, Google Cloud, which experienced a 35% sales increase.
Alphabet's cloud computing segment is unique in that it maintains high fixed costs and significant operating leverage once the business reaches scale. This setup, demonstrated substantially in Google Cloud's surge in profits throughout the last quarter, positions Alphabet for continued growth in the AI and cloud computing sectors. The forward P/E ratio of 19.4 further underscores its undervalued status.
Together, these high-growth investments and attractive valuations position both Nvidia and Alphabet as intriguing buy options within the "Magnificent Seven" tech stocks. To delve deeper into why these promising investments remain attractive, check out a more detailed analysis below.
1. Nvidia
Nvidia's swift growth, solid valuation, and strong analyst recommendations make it an intriguing tech stock option. The company is currently on pace to report its second consecutive year of triple-digit revenue increases, a major achievement given its size. As the AI and machine learning market continues to expand, Nvidia will likely maintain its position as a leader in the AI accelerator market, with an anticipated influx of $70 billion in the total addressable market for AI accelerators by 2025.
Furthermore, the company's dominance in generative AI, data analytics, gaming, and machine learning sections creates a significant demand for its chips. Nvidia's high-performance hardware is essential for powering AI applications, which should fuel its growth in the decades to come. The recent introduction of the Blackwell GPU—hailed as an "exponential leap forward" due to its improved connectivity, enhanced memory, and quicker data processing—further fuels optimism for its prospective gains.
With a market capitalization of $3.6 trillion and large customers like Microsoft, Google, and Tesla, Nvidia rests on a robust sales base. Many analysts remain bullish on the stock, with forecasts ranging from $175 to $185. Elon Musk's xAI, which uses 20,000 GPUs to train its AI models, is a shining example of the growing customer base employing GPUs. Investors can also take note of Microsoft's $80 billion AI data center expansion plans and a projected $500 billion AI infrastructure investment from a consortium comprising Oracle, SoftBank Group, and OpenAI.
2. Alphabet
While Nvidia dominates the AI market, Alphabet presents an equally compelling investment opportunity due to its strong growth and undervalued valuation. Alphabet recently boasted impressive earnings growth, with revenue, profits, and earnings per share climbing 15%, 34%, and 37%, respectively, in the previous quarter. This performance was driven by its cloud computing division, Google Cloud, which registered a 35% revenue growth rate.
As organizations scramble to develop their AI models and applications, Alphabet's cloud computing division is expected to continue growing, coupled with the company's data center expansion plans. These developments should further strengthen its market position and improve its profitability in the coming years. Additionally, Alphabet's custom AI chips, in collaboration with Broadcom, have been utilized to improve AI inference processing times and cut down on costs.
The investment in custom AI chips will ultimately drive strong earnings growth for Alphabet as the company scales its cloud computing operations and captures more market share in the IT sector. Moreover, Alphabet's established lead in search engines and streaming platforms, including Google and YouTube, means the company continues to generate revenue through these digital services, contributing to the company's future growth.
Overall, Alphabet successfully balances growth and value with a substantial potential for quantum computing and robotaxis in the long term. These impressive growth prospects, coupled with a favorable valuation, make it a compelling buy within the "Magnificent Seven" tech stocks.
Investors interested in finance and investing might consider allocating their money towards Nvidia and Alphabet, as both companies were among Jefferies' top picks from the "Magnificent Seven" tech stocks. Analysts believe that Nvidia's attractive valuation, solid growth potential, and favorable analyst sentiment make it an intriguing investment option, with projected sales growth of over 50% in 2025. On the other hand, Alphabet's lower valuation and solid earnings growth, primarily driven by the cloud computing division, make it seem undervalued as well, attracting the attention of financial analysts.
