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Life has come full circle for tech stocks. After being the worst-performing S&P 500 Index ($SPX) subsector in 2022, tech is so far the best-performing sector this year. The steep rally in tech stocks led to a massive rally in the Nasdaq Composite ($NASX) in the first half of 2023, which was eventually its best start to the year in four decades.
Amid the rally, the combined market cap of Nasdaq constituents soared by a whopping $4 trillion in the first half of 2023. Several other milestones were reached this year, as well. While Apple (AAPL) became the first company ever to close at a market cap of over $3 trillion, Nvidia (NVDA) joined the ranks of trillion-dollar companies.
Tech Stocks Have Rallied in 2023
The rise in tech stocks in 2023 has been primarily due to two reasons. First, after the heavy selling in 2022 - where names like Nvidia and Tesla (TSLA) lost almost two-thirds of their market caps - the sector seemed to offer good value. Second, the euphoria over artificial intelligence (AI) helped propel the sector higher – even as a section of the market believes that the AI boom has all the signs of the kind of bubble we last saw in the dot-com days.
While the Street-high target price calls for Nvidia shares - an AI bellwether - to more than double over the next year and cross the psychologically significant level of $1,000, hedge funds linked to George Soros, Stanley Druckenmiller, and Dan Loeb all sold NVDA shares in Q3. Plus, Michael Burry of “Big Short” fame opened a new short position in the iShares Semiconductor ETF (SOXX), whose third-largest holding is Nvidia, with a notional value of $47.4 million.
The Best-Performing Magnificent 7 Stocks of 2023
Nvidia has more than tripled in 2023, and is the best-performing constituent of the so-called “Magnificent 7” - followed by Meta Platforms (META) and Tesla. Amazon (AMZN) is fourth on the list with YTD gains of around 72%.
Apple is the worst-performing of the group, but even so, the stock has risen 46% this year - which is better than the Nasdaq Composite.
Meanwhile, I believe Meta Platforms and Amazon are two of the best-performing tech stocks that look like good buys for 2024, as well.
Why Amazon Stock Looks Like a Good Buy for 2024
Amazon was a top pick for analysts heading into 2023 – just as it was in 2022. Wall Street’s love affair with the Andy Jassy-led company fails to die, and Oppenheimer has already designated it as a top pick for 2024. I'm reasonably sure that many more will follow suit.
The stock has a consensus “Strong Buy” rating from over 90% of the analysts in coverage, with the mean target price of $172.34 about 19% higher than current levels.
Here’s why Amazon looks like a good tech stock to buy for 2024:
- Cost cuts and improved cash flows: Amazon continues to focus on cost cuts and higher efficiencies, which helped the company post a net profit of almost $10 billion in Q3 2023 – a new record. Amazon's operating margin – which is a much better indicator of performance – also rose to 7.8% in Q3, which is the highest since early 2021. In the trailing 12-month period, Amazon’s free cash flows stand at $21.4 billion, indicating it's back to being a cash-generating behemoth after posting negative free cash flows in 2021 and 2022.
- Stabilizing growth: Amazon’s revenue growth is also expected to stabilize, and analysts are modeling an 11.4% rise in revenues in 2024. I believe there’s an upside to these estimates on strength in both the enterprise-focused Amazon Web Services (AWS) division and the e-commerce operations.
- Reasonable valuations: Amazon stock trades at a next 12 months (NTM) price-to-earnings (PE) multiple of under 44x, which looks reasonable. Amazon is now much more than an e-commerce play, and houses businesses as diverse as cloud, artificial intelligence, digital advertising, and streaming. The sum of the parts valuations of these businesses might be much higher than where markets are currently valuing the company.
I believe that Amazon is an underappreciated AI play, as the technology should not only make its platform more appealing for users by improving recommendations, but also help to lower costs through better logistics and supply chain management. With Amazon shares still below their 2021 highs, I believe it looks well-placed for 2024 after a stellar 2023.
Meta Platforms Is Another Magnificent 7 Stock Worth Watching
Meta Platforms is another strong tech stock to consider, despite its mammoth rally already this year - and in fact, it's still trading considerably below its all-time highs.
Like Amazon, Meta is also an AI play, and it's benefiting from the technology in different ways. While Meta CEO Mark Zuckerberg did not specifically describe 2024 as the “year of AI,” the overall tone of the Q3 2023 earnings call seems to suggest as much.
There are several reasons to be bullish on Meta as we head into 2024. These include:
- Reels monetization: During the Q3 earnings call, Meta said that Reels – a division where monetization was a sore point until a few quarters back – is now “net neutral” to its overall revenues. Better monetization of Reels should help to support the company’s growth in the coming quarters.
- Meta’s growth is back on track: Meta’s growth appears to be back on track after the company reported its first YoY decline in revenues in 2022. Analysts expect the company’s revenues to rise 13% in 2024, which is slightly below the expected growth for 2023, but still looks healthy due to the high base in 2023.
- Valuations: Meta still trades at an NTM PE multiple of just under 20x, which looks decent.
Analysts are also bullish on Meta shares heading into 2024, and almost 96% rate it as a Strong Buy – one of the highest buy recommendations among major tech companies. Overall, I believe Meta is one tech stock that can do well in 2024 after a breathtaking rally in 2023.
On the date of publication, Mohit Oberoi had a position in: META , AAPL , AMZN , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
