The S&P 500 blasted higher over the past few years amid excitement about artificial intelligence (AI) companies — many of these players set the pace, advancing in the double, triple, and quadruple digits. You’ll likely recognize some of the names, such as cloud services giant Amazon and AI chip leader Nvidia (NVDA 0.27%).
These companies, part of the Magnificent Seven technology stocks, even started to generate significant revenue from the AI boom. So they saw earnings and stock price take off.
In recent weeks, though, we’ve seen a shift. As part of “The Great Rotation,” investors have turned away from these tech giants in favor of a broader range of companies powering the general economy — from industrials to healthcare companies.
But, considering the earnings power of tech companies’ products and services, The Great Rotation won’t last forever. Let’s check out three growth stocks to buy before tech rebounds.
Image source: Getty Images.
1. Meta Platforms
Meta Platforms (META +0.44%) is a clear leader in the world of social media, with its ownership of Facebook, Messenger, WhatsApp, and Instagram. More than 3.5 billion people worldwide use at least one of these every day — advertisers know this, and this is why they flock to Meta to promote their products. And this drives the company’s billion-dollar revenue.
But Meta isn’t just about social media these days. The company has drawn up major AI plans, aiming to add AI to its apps to make them better — and keep us on them longer. Meta also is revamping the ad experience to supercharge ad performance. All of these efforts should lead to increased ad revenue.
Meta’s development of chips, a large language model, and its own data centers could also lead to other revenue-generating products and services. All of this makes the stock, the cheapest of the Magnificent Seven, an irresistible buy at 19x forward earnings estimates.
META PE Ratio (Forward) data by YCharts
2. Alphabet
Alphabet (GOOG +0.98%) (GOOGL +1.27%) is another company that operates a billion-dollar-generating business outside of AI: It’s the owner of the popular search platform, Google. And like Meta, advertising revenue — in this case, across Google — powers earnings growth.
However, Alphabet also is seeing tremendous growth in a second business, and that’s cloud computing. The company’s Google Cloud unit offers AI and non-AI services to customers and has seen growth explode higher. Demand for capacity is soaring, and this is likely to continue as more and more companies seek to apply AI to their businesses — they will need chips and complete AI systems to power their platforms. And Google Cloud provides them.
Today’s Change
(1.27%) $3.77
Current Price
$299.54
Key Data Points
Market Cap
$3.6T
Day’s Range
$295.22 – $299.71
52wk Range
$140.53 – $349.00
Volume
306K
Avg Vol
34M
Gross Margin
59.68%
Dividend Yield
0.28%
Cautious investors may also like Alphabet because its biggest growth driver remains the advertising business across the Google platform. In the most recent quarter, this business accounted for 72% of total revenue.
Finally, Alphabet, also is bargain today, trading at 26x forward earnings estimates, making it a stock to snap up right now.
3. Nvidia
Nvidia is probably the world’s most well-known AI company. That’s because it’s the leading provider of the crucial element powering this revolution: the AI chip. Others design AI chips too, but Nvidia’s consistently have been the fastest and most powerful — this is a key selling point as customers are eager to get the AI job done as quickly and efficiently as possible.
This AI giant has expanded into many other supporting products, so that it now provides entire systems to its customers. If you’re worried about Nvidia’s ability to stay ahead, this may reassure you: The company has pledged to update its chips annually and has followed through on this with recent launches — and now has the Vera Rubin update on the calendar for later this year.
Today’s Change
(-0.27%) $-0.47
Current Price
$176.92
Key Data Points
Market Cap
$4.3T
Day’s Range
$175.77 – $177.79
52wk Range
$86.62 – $212.19
Volume
2.3M
Avg Vol
181M
Gross Margin
71.07%
Dividend Yield
0.02%
Meanwhile, the general AI growth story remains intact, with analysts expecting the market to reach into the trillions of dollars in just a few years. This should continue powering the earnings of Nvidia, the central player in the AI story, higher.
Today, Nvidia stock is among the cheapest of the Magnificent Seven at 21x forward earnings estimates, making it a fantastic stock to buy before the tech rebound.