The ‘Magnificent Seven' and AI: How to Ride the Wave of Big Tech's Massive Spending Spree
The stock market is defying gravity! We've just witnessed the longest winning streak of the year, with major indexes like the S&P 500 and Dow Jones Industrial Average reaching for the stars. As I predicted in our Monday issue, the driving force behind this incredible surge is the revolutionary power of artificial intelligence (AI).
I've spent this week showing you some exciting AI opportunities, with a focus on income. Today, I want to bring it all together, and show you how the biggest, most proven companies are leading the charge.
Forget trying to pick the “next” Nvidia (NVDA). The safest and smartest way to play the AI boom is by riding the wave of big tech's massive spending spree on this game-changing technology. I'm talking about the “Magnificent Seven”: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), Tesla (TSLA), and, of course, Nvidia.
These are not just tech giants; they are AI powerhouses, pouring billions of dollars into research, development, and deployment to capture this revolutionary technology’s vast potential. Even better, every one of them pays dividends, offering you a slice of the profits as they transform the entire global economy.
As we saw with IBM (IBM) earlier this week, even legacy companies are transforming into AI powerhouses. The Magnificent Seven are further along in their journey.
Here's a closer look at why these seven titans are the best way for income investors to harness the power of AI:
1. Apple: AI at Your Fingertips
Why Apple is a Buy: Apple is the world's most valuable company, and it's only getting stronger with AI. Their chips are getting an AI boost, and their software is increasingly powered by AI. This should lead to a new generation of must-have products and services.
Analysts are bullish on Apple's prospects, with some predicting a “renaissance of growth” powered by AI. Remember earlier this week, we saw that iPhone sales in China are soaring, up 20% since the launch of the iPhone 16? That's just the beginning.
Dividend Strength: Apple has a long history of raising its dividend, and its current yield of 0.5% is nothing to sneeze at, especially when coupled with the stock's impressive growth potential.
2. Microsoft: The Cloud King's AI Domination
Why Microsoft is a Buy: Microsoft is already a dominant force in the AI industry with its Azure cloud computing platform, which offers a wide range of AI-powered services for businesses. Azure is growing rapidly, fueled by the insatiable demand for AI solutions.
Microsoft is also leading the way in integrating AI into everyday software applications with its Microsoft 365 Copilot, which is going to become a key driver of revenue.
Dividend Strength: Microsoft offers a solid 0.8% dividend yield, and it consistently raises its payouts.
3. Amazon: AI-Powered Everything
Why Amazon is a Buy: Amazon Web Services (AWS), the company's cloud computing division, is a giant in the AI space with a commanding market share of about 30%. As AI adoption continues to accelerate, AWS will be a primary beneficiary.
Amazon is also integrating AI into its core retail business. Its recommendation engine is already powered by AI, which is a big reason why the company is so efficient at selling you exactly what you want.
Dividend Strength: Amazon doesn't currently pay a dividend, but with its massive profitability from AWS and other high-margin services, it's only a matter of time before it starts rewarding income investors.
4. Alphabet: The Search Engine Reimagined
Why Alphabet is a Buy: Alphabet is the parent company of Google, so it has a treasure chest of user data that can be used to train powerful AI models. AI is already supercharging Google Search, making it faster and more accurate.
As we saw, Google Cloud is another rapidly growing AI platform. Alphabet's own AI chips, called TPUs, provide a significant competitive advantage and generate substantial revenue.
Dividend Strength: Alphabet hasn't been paying a dividend for very long, but the company clearly has the potential to become a dividend-paying powerhouse.
5. Meta: AI Is Shaping the Future of Social Media
Why Meta is a Buy: Meta is using AI to personalize the Facebook and Instagram experience, making it more engaging for users and more appealing for advertisers. AI is also going to play a key role in the metaverse, which is Meta's big bet on the future of social interaction.
Meta's open-source LLMs, such as Llama 2, are already changing the game, and its commitment to open source is attracting a large community of developers.
Dividend Strength: Meta has recently joined the ranks of dividend payers. Its current yield is only around 0.3%, but there's plenty of room for growth.
6. Tesla: AI on Wheels (And Maybe Beyond)
Why Tesla is a Buy: Tesla is leading the charge in autonomous driving with its Full Self-Driving software. AI is also at the heart of its future ambitions in robotics and what Musk refers to as “real world” AI.
Tesla is one of the few companies that can collect vast amounts of real-world data on driving, which gives it a huge advantage in developing autonomous vehicle technology.
Dividend Strength: Tesla doesn't currently pay a dividend. But if it achieves anything close to its ambitions in autonomous driving, its profitability could explode, creating the possibility for a future AI-powered dividend stream.
7. Nvidia: The Undisputed AI Chip King
Why Nvidia is a Buy (or Not): Nvidia remains the leader in AI accelerators, with its technology powering a huge chunk of the industry. As mentioned, its next generation of chips are already sold out for the next year, speaking to the strength of demand.
However, Nvidia's stock has already soared to incredible heights. Is there still room to run? That depends on whether AI adoption grows as much as many expect. It also depends on the competition. It's possible AMD (AMD) could catch up, and eat into Nvidia's market share. Remember, AMD CEO Lisa Su just raised her projection for the AI market to reach $500 billion by 2028.
Dividend Strength: Nvidia does pay a small dividend, but its yield is less than 0.1%. While they are not known for dividend growth, income-seeking investors may be better off with other Magnificent Seven stocks, at least for now.
The Magnificent Seven are driving the future of AI. By investing in these titans, you're not only betting on individual companies; you're investing in the future of technology itself. You'll also enjoy the comfort of knowing these are the safest, most financially stable companies to own in this high-growth and sometimes volatile sector.
Don’t miss tomorrow's newsletter, where I'll expose the most dangerous lie Wall Street is telling you about the AI boom. I'll show you how to protect your portfolio and potentially even profit from the coming volatility.
