The rise to prominence of artificial intelligence (AI) since early last year has been nothing short of phenomenal. The potential applications for generative AI continue to grow by leaps and bounds, and it has become clear that the companies at the cutting edge of this technology stand to profit from early adoption.
Leading the pack are the so-called "Magnificent Seven" group of stocks, which have outpaced the broader market by a wide margin since the advent of AI at the start of last year (in order by returns, as of this writing):
Nvidia (NASDAQ: NVDA): Up 700%
Meta Platforms (NASDAQ: META): Up 379%
Tesla: Up 120%
Amazon: Up 109%
Alphabet: Up 89%
Microsoft: Up 75%
Apple: Up 74%
To put those gains in the context of the overall market, the S&P 500 has increased 49% during that time, so the difference is stark.
It should come as no surprise that each of these companies is a leader in AI adoption and development. What is surprising is that a growing chorus on Wall Street -- which seldom agrees on anything -- is almost universal in its support of several of these stocks. And despite triple-digit gains, two of them still have a fair degree of upside ahead, according to select Wall Street analysts.
Meta Platforms: Implied upside 41%
The first stock with plenty of upside potential is Meta Platforms. The social media specialist has lately turned its gaze on the vast potential of generative AI, but the company has a long history of developing and deploying state-of-the-art algorithms.
Meta has a treasure trove of user data from its multiple social media sites, which supplies the information necessary to develop its own large language models -- which form the foundation of generative AI. While the company doesn't have a cloud infrastructure service of its own to monetize its LLaMA AI, Meta hawks its AI models on the cloud platforms of its rivals -- for a fee.
The company makes the lion's share of its revenue from the advertising that appears on its social media platforms. To that end, Meta has also developed a suite of tools to help those advertisers succeed, helping secure its share of those ad dollars.
Despite notching stock price gains of 379% since early last year (as of this writing), Wall Street remains firmly behind Meta. Just last week, Rosenblatt Securities analyst Barton Crockett assigned a Street-high price target of $811 and a buy rating on the shares. This represents potential upside of 41% compared to Tuesday's closing price.
Crockett believes that Meta's unrivaled spending on virtual reality, augmented reality, and the Metaverse is a strength rather than a weakness. It gives the company "an ability to make effective price/performance choices." He notes that Meta "is uniquely delivering category products that could be described as leading in consumer adoption." He's also impressed with Meta's latest advances in AI.
The analyst isn't the only one bullish on Meta. Of the 64 analysts who covered the stock in June, 56 rated it a buy or strong buy, and none recommended selling. Furthermore, Meta is selling for just 29 times earnings, a discount to the multiple of 30 for the S&P 500.
Meta boasts more than 3.2 billion users that visit its social media platforms every day, giving the company a steady of ongoing stream of relevant data. It's the world's second-largest digital advertiser, which provides the company with plenty of cash flow to pursue its AI ambitions.
Add in the opportunity represented by AI, and it's no wonder Wall Street is enamored with Meta.
Nvidia: Implied upside 71%
The second Magnificent Seven stock with a boatload of potential is Nvidia. The chip specialist has been one of the biggest early beneficiaries of the AI revolution as its graphics processing units (GPUs) make the technology possible. Nvidia's processors have long been the gold standard for video games, cloud computing, data centers, and other forms of AI. The dawn of generative AI in early 2023 have resulting in triple-digit gains in its revenue, earnings, and stock price.
It's easy to understand why. Nvidia is the undisputed leader in the discrete desktop GPU space, controlling 88% of the market, according to data compiled by Jon Peddie Research. The company also continues to dominate the data center GPU market, with a mind-boggling 98% of the market last year, according to semiconductor analyst firm TechInsights. If that weren't enough, Nvidia dominates the market for machine learning -- an earlier branch of AI -- with 95% of that market, according to business analytics company CB Insights. This helps to illustrate that when it comes to the data center and AI market, Nvidia is the undisputed leader.
Despite stock price gains of roughly 700% since the start of last year (as of this writing), Wall Street is still rallying around Nvidia. Rosenblatt analyst Hans Mosesmann maintains a buy rating and Street-high price target of $200 on the stock. This represents potential upside of 71% compared to Tuesday's closing price.
Mosesmann believes the chipmaker's software -- which complements and accelerates its industry-leading processors -- doesn't get enough credit. "We anticipate this software aspect will significantly increase in the next decade in terms of overall sales mix, with an upward bias to valuation due to sustainability," Mosesmann wrote.
The analyst isn't the only one bullish on Nvidia. Of the 60 analysts who offered an opinion on the stock in September, 55 rated the stock a buy or strong buy, and none recommended selling.
While some investors might be leery of Nvidia's valuation, that view is myopic. For Nvidia's fiscal 2026, which begins in February, analysts' consensus estimates are calling for earnings per share of $4.02. With a current share price of $117, that works out to roughly 29 times forward earnings, cheaper than the current multiple of 30 for the S&P 500.
Given the company's industry dominance and cutting edge technology, I think it's clearly a bargain.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 "Magnificent Seven" Stocks to Buy Before They Soar as Much as 71% According to Select Wall Street Analysts was originally published by The Motley Fool