Jefferies Ranks Nvidia and Alphabet as Top Picks Among the Magnificent Seven for 2025

Analysts at Jefferies have recently evaluated the "Magnificent Seven" stocks, identifying which ones they expect to outperform in 2025. This group consists of prominent mega-cap tech stocks that have significantly contributed to market growth over the past few years.

At the top of Jefferies' rankings are Nvidia (NVDA) and Alphabet (GOOGL), followed by other notable companies such as Meta Platforms, Apple, Amazon, Tesla, and Microsoft.

The rankings stem from various quantitative assessments, including factors like growth potential, valuation, yield, adjustments in earnings expectations, sentiment among analysts, return on invested capital (ROIC), stock price trends, and research and development (R&D) expenditures relative to capital expenses.

Nvidia earned its top position largely due to its remarkable growth trajectory, improved guidance forecasts, appealing valuation metrics, and positive analyst sentiment.

Nvidia

Nvidia presents an impressive blend of robust growth and attractive valuation. The company is set to report its second consecutive year of revenue increases exceeding 100%, an impressive feat given its size.

Analysts predict that Nvidia will achieve sales growth greater than 50% in 2025. Currently, it is valued with a forward price-to-earnings (P/E) ratio below 33 and a price/earnings-to-growth (PEG) ratio of 1, indicating that it may be undervalued, especially since growth stocks often have PEGs above 1.

The company's growth is propelled by the rapid expansion of artificial intelligence (AI) infrastructure and a competitive advantage stemming from its CUDA software platform. Nvidia's graphics processing units (GPUs), initially designed for enhancing video game graphics, have evolved into essential components for AI infrastructure due to their high processing capabilities.

As significant tech companies and AI startups work to enhance their AI models, they are increasingly relying on GPUs for the computing power needed for training. Nvidia's CUDA X suite comprises libraries, tools, and microservices that render its semiconductors highly adaptable for diverse AI tasks, leading to a dominant market share of nearly 90% in the GPU market.

A noteworthy example is Elon Musk's xAI, which utilized 20,000 GPUs to train its Grok 2 model and increased the count to 200,000 for the second phase of training. The company has plans for a future data center incorporating a cluster of 1 million GPUs.

Nvidia's biggest client, Microsoft, recently declared an $80 billion investment in AI data centers this year. Furthermore, a collaborative effort including Oracle, SoftBank Group, and OpenAI has discussed a potential $500 billion investment in AI infrastructure in Texas as part of Project Stargate.

Such initiatives strongly suggest future demand for Nvidia's GPUs, reinforcing the growth prospects that lie ahead.

Alphabet

While no other major company can quite match Nvidia's recent growth, Alphabet stands out as a strong growth contender with the lowest valuation among the Magnificent Seven, showcasing a forward P/E of just 19.4.

In the last quarter, Alphabet achieved a commendable 15% increase in revenue, while profits surged by 34%, and earnings per share increased by 37%. The growth has been primarily driven by the Google Cloud division, which witnessed a remarkable 35% revenue increase.

The cloud computing sector is characterized by high fixed costs and significant operating leverage once it attains scale. This was evident last quarter, as Alphabet's cloud division reported its operating income skyrocketing from $266 million a year ago to $1.95 billion.

With organizations increasingly vying to establish their own AI models, Alphabet is strategically investing in expanding data center capacity. Utilizing custom AI chips developed in partnership with Broadcom, in addition to GPUs, Alphabet is enhancing processing efficiency and cutting costs.

As Alphabet continues to grow as the smallest player among the big-three cloud computing firms, along with its cutting-edge chip capabilities, the margins for Google Cloud are expected to improve, paving the way for healthy earnings growth.

Additionally, Alphabet maintains a stronghold in the search engine market through Google and YouTube, the most widely used streaming platform globally. Revenue from these services continues to expand at double-digit rates, with the overall Google Services segment reporting a 13% revenue rise in the last quarter and a 29% increase in operating income, totaling $30.9 billion.

This year, Alphabet plans to integrate its new Gemini AI model across its businesses to drive growth further and introduce the Gemini app, their counterpart to ChatGPT.

Moreover, Alphabet is exploring other emerging sectors such as quantum computing, where it recently made significant technological advancements. It also owns Waymo, the only company providing paid robotaxi services in the U.S. Though these ventures are currently in a developmental phase, they possess substantial future potential.

In summary, Alphabet combines solid growth with attractive value, while diversifying its investments into promising technologies like robotaxis and quantum computing.

The authors and analysts mentioned here have no direct financial ties to the companies discussed. Investment in stocks involves risk, and potential investors should conduct their own research before making decisions.

Nvidia, Alphabet, Stocks