Growth Investor Underweight on the Magnificent Seven, But Sees Potential in Microsoft
The "Magnificent Seven" stocks, including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, have garnered significant popularity this year. However, one growth investor has taken an underweight position on this group. Jonathan Curtis, the incoming chief investment officer at Franklin Equity Group, acknowledges the success of the Magnificent Seven, attributing it to their strong balance sheets, profitability, and increased efficiency post-Covid. He also highlights the tremendous opportunities these companies have in the field of artificial intelligence. Despite this positive outlook, Curtis advises investors to exercise caution and curiosity when it comes to the tech mega-caps.
While Curtis is underweight on the Magnificent Seven, he expresses a strong affinity for Microsoft. He specifically identifies Microsoft's Microsoft 365 Copilot feature as a promising opportunity. This artificial intelligence supplement to core products like Word, Excel, and other Office programs has the potential to generate significant revenue. Curtis estimates that the commercial Office feature could add $180 billion in "incremental revenue" to Microsoft, considering its potential half a billion user base. He believes that the market has not fully accounted for Microsoft's growth potential in the AI space, and if the company succeeds with generative AI, it could positively impact other infrastructure providers like Nvidia.
Year-to-date, Microsoft shares have seen a 45% increase, while Nvidia shares have surged by nearly 200%. Curtis emphasizes that stock performance should be evaluated based on future prospects and earnings power rather than past performance. He believes that both Microsoft and Nvidia possess significant earnings power that will contribute to their long-term success.
Analysts also share a positive outlook on Microsoft, with over 90% of the 54 analysts covering the stock giving it a buy or overweight rating. The mean target price of $404.90, according to FactSet, suggests an upside of around 15% from the stock's November 3 closing price.
In conclusion, while the Magnificent Seven stocks have gained popularity, one growth investor remains underweight on the group. However, the investor sees immense potential in Microsoft, particularly in its AI endeavors. The market's evaluation of Microsoft's growth potential and the underestimated estimates of infrastructure providers like Nvidia present opportunities for investors to consider.
The Magnificent Seven: A Cautionary Tale for New Businesses
The Magnificent Seven stocks, a group dominated by tech giants, have seen significant popularity this year. However, growth investor Jonathan Curtis' underweight position on this group offers a critical perspective for new businesses. While acknowledging the success of these companies and their potential in artificial intelligence, Curtis advises caution and curiosity. This advice is particularly pertinent for startups entering the tech sector, suggesting a need for careful market analysis and strategic positioning.
Spotlight on Microsoft: An AI Opportunity
Despite his underweight stance on the Magnificent Seven, Curtis sees significant potential in Microsoft, particularly its Microsoft 365 Copilot feature. This artificial intelligence supplement to core products could generate substantial revenue, presenting a promising model for new businesses in the AI space. The market's underestimation of Microsoft's growth potential in AI indicates an opportunity for startups to carve out a niche in this burgeoning field.
Performance Evaluation: A Lesson for Startups
Curtis' emphasis on evaluating stock performance based on future prospects and earnings power, rather than past performance, offers a valuable lesson for new businesses. This forward-looking approach encourages startups to focus on long-term success and earnings potential, crucial considerations for sustainable growth.
In essence, while the Magnificent Seven stocks may be popular, Curtis' perspective offers insightful lessons for new businesses. His emphasis on caution, curiosity, and forward-looking performance evaluation, coupled with the identified potential in AI, presents a roadmap for startups navigating the tech sector.