Life has come full circle for tech stocks. After being the worst performing S&P 500 Index ($SPX) subsector in 2022, technology is the best performing sector so far this year. The steep rally in tech stocks led to a massive rally in the Nasdaq Composite ($NASX) in the first half of 2023, which ended up being its best start to the year in four decades.
Amid the rally, the combined market cap of Nasdaq components 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 more than $3 trillion, Nvidia (NVDA) joined the ranks of trillion-dollar companies.
Tech Stocks Rally in 2023
The rise of tech stocks in 2023 was mainly due to two reasons. First, after the strong selloff in 2022 — where names like Nvidia and Tesla (TSLA) lost nearly two-thirds of their market caps — the sector appeared to offer good value. Second, the artificial intelligence (AI) euphoria has helped propel the sector higher – even as a section of the market believes the AI boom has all the signs of the kind of bubble we last saw in the dot-coms.
While the lofty target price calls for Nvidia shares — an AI bellwether — to more than double over the next year and cross the psychologically significant $1,000 level, hedge funds linked to George Soros, Stanley Druckenmiller and Dan Loeb have all sold NVDA shares. in Q3. Additionally, 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 more than tripled in 2023, and is the best performing component 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 performer of the group, but even so, the stock is up 46% this year – which is better than the Nasdaq Composite.
Meanwhile, I believe that Meta Platforms and Amazon are two of the best tech stocks that also look like good buys for 2024.
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 isn’t dying, and Oppenheimer has already named it a top pick for 2024. I’m reasonable. sure that many more will follow the example.
The stock has a consensus “Strong Buy” rating from more than 90% of the analysts in coverage, with the average 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 reductions and improved cash flows: Amazon continues to focus on cost reductions and higher efficiencies, which helped the company post a net profit of nearly $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, the highest since early 2021. In the trailing 12-month period, Amazon’s free cash flows stand at $21.4 billion , indicating that it has returned 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, with analysts modeling an 11.4% increase in revenue in 2024. I believe there is an improvement to these estimates on strength in both the enterprise-focused Amazon Web Services (AWS) division and the division e-commerce operations.
- Reasonable valuations: Amazon stock trades at a trailing 12-month (NTM) price-to-earnings (PE) multiple of less than 44x, which looks reasonable. Amazon is now much more than an e-commerce play, and encompasses businesses as diverse as cloud, artificial intelligence, digital advertising and streaming. The sum of the partial valuations of these businesses could be much higher than where markets currently value the company.
I believe that Amazon is an underrated AI play, as the technology should not only make its platform more attractive to users by improving recommendations, but also help lower costs through better logistics and supply chain management. With Amazon stock still below its 2021 highs, I believe it looks well positioned 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 huge rally already this year – and in fact, it’s still trading well below its all-time highs.
Like Amazon, Meta is also an AI play, and it benefits from the technology in different ways. While Meta CEO Mark Zuckerberg didn’t specifically describe 2024 as the “year of AI,” the general tone of the Q3 2023 earnings call seems to suggest as much.
There are several reasons to be optimistic about Meta as we head into 2024. These include:
- Monetization of Reels: During the Q3earnings call Meta said that Reels – a division where monetization was a pain point until a few quarters back – is now “neutral” to its overall revenues. Better monetization of Reels should help 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 revenue in 2022. Analysts expect the company’s revenue 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 is still trading at an NTM PE multiple of just under 20x, which looks decent.
Analysts are also bullish on Meta stock in 2024, with nearly 96% rating it a Strong Buy – one of the highest buy recommendations among major technology companies. Overall, I believe Meta is one tech stock that can do well in 2024 after an amazing rally in 2023.
At the date of publication, Mohit Oberoi held positions in: META , AAPL , AMZN , NVDA . All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.