Nvidia (NVDA 1.64%) and meta platform (meta -0.09%) The two Magnificent Seven stocks have performed best over the past 12 months. NVIDIA stock has risen more than 230% as the AI market’s explosive growth has led more companies to upgrade their data center GPUs to handle complex AI tasks. Meanwhile, Meta’s stock price rose nearly 140% as growth in its advertising business accelerated again.
But should investors still buy any of these high-growth tech stocks today?
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Nvidia is still firing on all cylinders
Nvidia used to make most of its money by selling discrete GPUs for gaming PCs. But over the past few years, the chipmaker has rolled out high-end GPUs to accelerate machine learning and AI tasks in data centers.
The move gives the company a firm foothold in the growing AI market, with sales of data center GPUs soaring and surpassing sales of gaming GPUs. In fiscal year 2024 (ending in January of this year), 78% of its revenue came from data center GPUs.
Revenue for the year increased 126% and adjusted earnings per share (EPS) increased 288%. This marked a surprising acceleration from flat revenue growth and his 25% decline in adjusted EPS in fiscal 2023.
Much of that growth has been driven by the growing popularity of OpenAI’s ChatGPT and other generative AI platforms, leading more companies to purchase GPUs in their data centers to upgrade their AI capabilities. As the PC market recovered, sales of gaming GPUs also stabilized in the second half.
Analysts expect Nvidia’s revenue and adjusted EPS to grow 81% and 89%, respectively, in fiscal 2025 as the AI market continues to expand. Based on these expectations, Nvidia’s stock still looks like a good value at a forward P/E of 37.small rival AMD (NASDAQ: AMD)has a slow growth rate and trades at a forward P/E ratio of 49 times.
Nvidia remains the top seller of shovels and picks in this AI gold rush, but investors shouldn’t ignore long-term threats. AMD is already rolling out cheaper data center GPUs, with major customers such as OpenAI, microsoftand alphabetGoogle is developing its own first-party AI chips, and other major chip makers are also intel and Qualcomm is collaborating on the development of an open source alternative to Nvidia’s closed source CUDA programming platform. All these challenges could prevent NVIDIA from dominating the fast-growing market for AI accelerator chips.
The meta is recovering from a severe slowdown
At the end of 2023, Meta served 3.98 billion monthly active users across its family of apps (Facebook, Messenger, Instagram, and WhatsApp). But going back to 2022, its revenue and EPS were down 2% and 38%, respectively. The cause of the slowdown was appleprivacy changes in iOS (which disrupted its ability to mine data from third-party apps), stiff competition from ByteDance’s TikTok and other social media apps, and macro headwinds for digital advertising.
As Meta’s advertising business slumped, it increased spending on its unprofitable Reality Lab unit, which houses virtual reality and augmented reality devices. The combination of slowing revenue growth and rising expenses spooked bulls.
However, Meta’s revenue and adjusted EPS in 2023 increased by 16% and 73%, respectively. It has successfully countered Apple’s changes by collecting more first-party data with its AI algorithms, and has expanded short video platform Reels to keep pace with TikTok and target international consumers. It attracted more advertising dollars from Chinese gaming and e-commerce companies. These Chinese advertisers accounted for 10% of Meta’s total annual revenue.
Meta continued to expand its Reality Labs division, but still generated enough cash to begin paying its first dividend and increase its current share buyback authorization by $50 billion. These confident moves suggest brighter days are ahead, with analysts expecting the company’s revenue and EPS to increase 17% and 35%, respectively, in 2024. If the U.S. government finally bans its biggest competitor, TikTok, this year, it could easily exceed expectations.
Meta’s stock looks reasonably valued at a forward P/E of 25 times, but other long-term challenges could constrain its growth. Chinese advertisers who bought so many ads across apps in 2023 could suddenly curb their spending. TikTok could avoid U.S. ban, reinforcing pressure on Instagram and Reels, while Meta still has to deal with multiple unresolved antitrust and privacy investigations in the U.S. and Europe .
Better Buy: Nvidia
Both of these Magnificent Seven stocks are solid long-term investments. But if I had to choose, I would buy Nvidia over Meta. He has three reasons for this. It is growing very fast, has a wide moat, and is not yet overvalued relative to its growth potential. Meta will remain social media’s 800-pound gorilla for some time, but it may also face much greater macroeconomic, competitive, and regulatory headwinds than Nvidia.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Leo Sun has positions at Apple and Metaplatform. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Microsoft, Nvidia, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 Call on Intel, Long January 2025 $45 Call on Intel, Long January 2026 $395 Call on Microsoft, Short January 2026 $405 Call on Microsoft call, and a May 2024 $47 short call. Intel. The Motley Fool has a disclosure policy.
