2 “Magnificent Seven” stocks that could create sustainable generational wealth

Historically, the stock market has helped create huge amounts of generational wealth. However, all stock investments are not created equal.

Investors looking to build sustainable generational wealth should opt for stocks of companies with strong fundamentals, solid financials and sustainable growth strategies.

Apple, Amazon, Nvidia, Microsoft (MSFT 0.30%), Alphabet (GOOG 1.17%) (GOOGL 1.11%), adzeand Meta platformsknown as the “Magnificent Seven,” are the seven tech stocks that have demonstrated impressive performance over the past year. Of these, Microsoft and Alphabet are well-positioned to continue generating robust returns even in the coming years — wealth that can be passed down through generations.

Here’s why.

Microsoft

Microsoft shares are nearly 10% below their 52-week high of $468.35 in early July 2024. The stock failed to take off after its fiscal fourth-quarter 2024 earnings results (ended June 30), despite beating estimates of revenues and earnings. This was mainly due to slower-than-expected growth in its Azure cloud business.

However, the long-term growth story of this prominent player in the $5.06 trillion global IT market is intact due to its well-diversified business model and large customer base spread across verticals and geographies. Azure is still the cornerstone of the company’s long-term growth strategy. It accounted for a 20% share of the global cloud infrastructure services market in Q2 (ended June 30, 2024), up 3 percentage points from two years ago.

AI workloads were a major growth catalyst for Azure and accounted for nearly 8 percentage points of the cloud computing business’s year-over-year revenue growth in Q4. Microsoft also noted a 60% year-over-year increase in the number of Azure AI customers to 60,000, as well as an increase in average spend per customer at the end of Q4. In addition, the number of Azure AI customers using the company’s data and analytics tools also grew by 50% year-over-year in Q4.

Microsoft is also seeing increased adoption of AI-powered CoPilot assistants in its core offerings, with CoPilot customers growing 60% sequentially and existing enterprise customers significantly increasing usage in Q4. The company’s partnership with ChatGPT developer OpenAI has proven transformative for the company, and increased monetization of its AI services will be a headwind in the coming years.

Microsoft produced net income of $88.1 billion on revenue of $245.1 billion in fiscal 2024. Microsoft’s cash flow from operations reached $119 billion in fiscal 2024, meaning the company has substantial resources to continue its AI capital investments in the coming years.

Given these factors, Microsoft can be an impressive choice for long-term investors based on its strong economic foundation, resilient and diversified business model, multiple AI-powered tailwinds, and solid financials.

Alphabet

Alphabet, the digital advertising giant and parent of Google, YouTube and Android operating system Alphabet, reported its second quarter earnings results on July 23. Its shares fell despite strong revenue and earnings. Management’s comments about mounting pressures on operating income margins in Q3 appear to have bothered many investors. Share prices fell further after a recent Bloomberg report claimed the US Department of Justice could consider cracking down on the company for monopolizing the internet search market through exclusive deals with smartphone makers such as Apple and Samsung.

While the impending uncertainty is worrisome, the long-term impact on the stock will be minimal. Google accounts for 91% of the global internet search market. Therefore, even without exclusive agreements with mobile phone manufacturers, Google will maintain a dominant position in the US Internet search and digital advertising market for at least the next few years. According to the Statista Research Department, Google’s share of US digital advertising revenue is expected to decline from 26.8% in 2023 to 23.9% in 2026. Google is projected to be the largest digital ad publisher in USA by 2026.

To face increasing competition from Microsoft Bing and AI-powered search engines such as Perplexity.ai and the new OpenAI search engine called SearchGPT, Alphabet is incorporating advanced AI and machine learning capabilities in its Google search engine to provide more contextual and relevant results. . The company leverages its large user base and huge data pool to efficiently train its own Gemini family of models based on generative artificial intelligence. More than 1.5 million developers were using Gemini by the end of the second quarter.

Alphabet’s Google Cloud business is also building momentum and surpassed $10 billion in quarterly revenue for the first time in Q2. The company’s diversified product portfolio has ensured that the company is not overly dependent on just one product or service.

Alphabet is also cash-rich, with $101 billion in cash and marketable securities at the end of the second quarter, giving it the financial flexibility to invest in AI initiatives. However, the company trades at just 6.2 times trailing 12-month sales, far lower than many other AI tech titans. Given its outstanding qualities and reasonable valuation, Alphabet looks like an unusual, long-term choice for the savvy investor.