As in real life, technology is traditionally bought at a high price on the stock market. The fever for Artificial Intelligence (AI) has led to a strong expansion in the profits of the world’s most important companies that, even despite the impressive increases they have experienced on the stock market this year, have reduced the multiples at which they are listed. Despite this, among those known as the Magnificent Seven, only Alphabet and Meta offer lower earnings multipliers than the Nasdaq 100 itself this year.
For expected gains for the entire Nasdaq 100 in 2024, Investors are currently paying a PER (times the profit is reflected in the stock price) 29 times. This is a high multiplier, but it is acquired even though the index is up 14% over the year, placing it among the most bullish in the world. Expected earnings per share for the index are $664, gains that will be historic in the history of the index.
Although up to 48% of the companies included in the technology index are being bought cheaper this year, among the heavyweights, only Alphabet and Meta are trading below in 2024. Google’s parent company currently trades at a P/E of less than 20 times19.8 times to be precise, which means that Alphabet shares are being bought at a discount of more than 60% compared to the average of the last decade. This figure is reduced to 15 times by 2026, when the consensus of analysts collected by FactSet predicts that the company will become the company with the highest profits in the world, of more than $120.4 billion.
AI is already a growth catalyst in its accounts and experts expect it to continue to have a positive impact on results in the coming years. In the latest results presented by the company, those for the second quarter of the year, Its net profits increased by almost 30% year-on-year. and the tech giant’s CEO, Sundar Pichai, explained that the group’s strong performance during the quarter was underlined by “the continued strength of the search engine and the momentum of the cloud. We are innovating at every layer of the AI process.” Investors also see Google Cloud (the company’s cloud service) as the unit with the greatest potential to drive Alphabet’s development, reflecting the real growth engine that AI offers.
For this year, experts’ forecasts indicate that the company’s net profits will amount to $95,357 million, which will be a historic figure in the company’s history. In just two years, this profit will increase by 26% to more than $120 billion, a figure never reached by any company. “We believe that Alphabet’s fundamentals are strong and that the company will continue to be both the engine and the main beneficiary of an increasingly digital economy and advances in generative AI,” they say at JP Morgan.
The Meta multiplier is a bit higher, 24x in 2024, but that’s also offers a discount compared to the company’s average of the last 10 years, of 75%. The company led by Mark Zuckerberg is also among the big winners in AI. Thanks to more personalized ads, the Facebook company increased its profits by more than 70% year-on-year, approaching $13.5 billion, recording the best quarter in its history.
Estimates suggest that the tech company’s total profit will be more than $55.2 billion, up 41% from last year’s earnings. The figure will not stop there and will experience a 28% increase in just two years to exceed $70.6 billion in 2026. With these future earnings, the P/E drops to 18 times, at current prices. “We believe Meta’s AI has the potential to a) drive engagement, b) capture more signals and c) begin to address parts of the advertising market that Meta has not participated in (search). Of course, AI will be used to accelerate progress on many of these objectives, so CapEx should grow “significantly” in 2025,” they say from Deutsche Bank.
On the stock market, both companies are accumulating annual revaluations that exceed 44% in the case of Meta (Alphabet increases by 8%). However, analysts believe that the progression of their shares has not stopped there and still estimate a strong potential for growth for the following months: 35% for Google matrix and 12% for Meta. Experts recommend taking a position on their quotes.
At 33 and 35 times respectively, the projected earnings for Apple and Microsoft are acquired respectively. The apple company will reach 100 billion in net profits this year and in 2026 Microsoft will join it. Amazon and Nvidia are trading at a P/E of 38 times and 41 times respectively, compared to Tesla’s acquisition price of 101 times.
