The Nasdaq-100 index is home to the 100 largest non-financial companies listed on the Nasdaq stock exchange. Over the past decade, it has delivered an impressive return of 343%, outperforming the more diversified S&P 500 by a significant margin. This outperformance is largely due to its heavy concentration of the world’s largest technology companies, which have driven innovation and growth in the sector. However, this high exposure to tech stocks also makes the index more volatile, especially during uncertain times. Currently, the Nasdaq-100 is in correction territory, having declined 13% from its recent peak. Leading this decline are the “Magnificent Seven,” a group of seven companies within the index that have historically outperformed the broader market, despite occasional setbacks. These companies are Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla, with market caps ranging from $770 billion to $3.1 trillion.
Among these tech giants, Meta Platforms and Alphabet stand out as particularly attractive investments due to their recent stock price dips and their strong positions in emerging technologies like artificial intelligence (AI). Meta Platforms’ stock has dropped 19% from its record high, while Alphabet’s has fallen 21%. Both companies are leveraging AI to drive growth, improve their products, and maintain their competitive edge. For investors, these dips could represent a unique opportunity to buy into two of the world’s most innovative companies at discounted prices.
Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, serves over 3.3 billion people daily, making it one of the most widely used social media platforms in the world. The company generates revenue primarily through advertising, and its ability to keep users engaged is critical to its success. Meta has been investing heavily in AI to enhance user engagement, particularly through personalized content recommendations. For example, AI-powered recommendation engines are helping the company learn what users like to see, allowing it to deliver more relevant content and keep users online longer. This strategy appears to be working, as CEO Mark Zuckerberg reported an 8% year-over-year increase in user time spent on Facebook and a 6% increase on Instagram by the end of 2024.
In addition to improving engagement, Meta is also expanding its product offerings through AI. Last year, the company launched Meta AI, a chatbot accessible across all its platforms. This chatbot, powered by Meta’s Llama family of large language models (LLMs), allows users to ask questions, settle debates, and even recommend activities. By the end of 2024, Meta AI had over 700 million monthly active users, making it one of the most popular chatbots in the world. The Llama models are open-source, which has attracted a community of over 600 million developers who contribute to their improvement. This collaborative approach has enabled Meta to develop some of the most powerful AI models in the industry. Zuckerberg has even suggested that the upcoming Llama 4 version could outperform some of the best closed-source models from competitors like OpenAI. If true, Meta AI could become a leader in the industry, driving further user growth and revenue opportunities.
Meta’s financial performance is equally impressive. In 2024, the company reported a record $164.5 billion in revenue, a 22% increase from the previous year. Its earnings per share (EPS) jumped 60% to $23.86, giving the stock a price-to-earnings (P/E) ratio of 24.7. This makes Meta the second-cheapest stock among the Magnificent Seven, behind only Alphabet. Given its strong financial growth and leadership in AI, the recent 19% dip in its stock price presents a compelling long-term buying opportunity for investors.
Alphabet, the parent company of Google, YouTube, and Waymo, is another Magnificent Seven member that is worth considering. The company generates more than half of its revenue from Google’s search engine, which sells advertising slots to businesses. However, the rise of AI chatbots has posed a threat to Google’s dominance in search, as users increasingly turn to these chatbots for quick and convenient access to information. In response, Alphabet has made significant investments in AI to maintain Google’s 90% market share in search. Last year, the company introduced AI Overviews, which provide users with holistic, AI-generated responses at the top of search results. These Overviews combine text, images, and links to third-party websites, saving users time and effort. Importantly, Alphabet has noted that Overviews monetize just as well as traditional search results, ensuring that this new feature doesn’t hurt the company’s revenue. In fact, users are searching more frequently thanks to Overviews, as they can refine their queries and extract more detailed information than before.
The Overviews are powered by Alphabet’s Gemini family of LLMs, which were developed in-house to compete with models from startups like OpenAI and Anthropic. Gemini is not only enhancing Google Search but also powering a standalone chatbot and an AI assistant integrated into Google Workspace apps like Gmail, Docs, and Sheets. Additionally, Google Cloud, the fastest-growing segment of Alphabet’s business, is becoming a go-to destination for businesses and developers seeking cutting-edge data center computing capacity and LLMs. In the final quarter of 2024, Google Cloud customers were using eight times the amount of computing capacity for AI training and inference workloads compared to 18 months earlier. The company’s AI developer platform, Vertex AI, also saw a fivefold increase in customers last year.
Despite these positive developments, Alphabet’s stock has fallen 21% from its record high. This discrepancy between the company’s improving fundamentals and its declining stock price could signal a buying opportunity for investors. In 2024, Alphabet’s EPS grew by 38% to a record $8.04, giving its stock a P/E ratio of 20.2. This makes Alphabet not only the cheapest stock among the Magnificent Seven but also 32% cheaper than the Nasdaq-100 index as a whole, which trades at a P/E of 29.8. While the company still faces regulatory challenges, the recent dip in its stock price could make it a fantastic long-term investment.
In conclusion, both Meta Platforms and Alphabet are well-positioned to capitalize on the growing importance of AI, and their recent stock price dips represent attractive buying opportunities for investors. Meta’s focus on user engagement and AI-driven product innovation, combined with its strong financial performance, makes it a compelling choice. Similarly, Alphabet’s investments in AI to enhance Google Search and its cloud business position it for continued growth. While the Nasdaq-100 may experience volatility in the short term, these two companies have the potential to deliver significant long-term returns for investors who take advantage of the current dip.
