Microsoft and Meta Platforms: Top Analysts Pick the Best 'Magnificent 7' Stocks to Buy Ahead of Earnings

Markets have continued their upward trend and maintained momentum for much of the last two years. Year-to-date, the S&P 500 is up nearly 23%, while the tech-heavy NASDAQ is up about 26%.

Much of this growth has been driven by the so-called “Magnificent 7” stocks – a group of mega-cap tech giants that are not only reshaping industries but also creating significant market opportunities through their impressive growth and profitability.

Today we await earnings reports from two of those titans, Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META). As leaders in transformative fields like generative AI and cloud computing, these companies' results, whether positive or negative, are likely to send ripples through the stock market.

Two top analysts at investment firm Bernstein weigh in on the case, analyzing both Microsoft and Meta to find out where they stand – and label them as the best “Magnificent 7” stocks to buy ahead of today's earnings results. Let's take a closer look.

Microsoft

Let's start with Microsoft, the 800-pound gorilla of the software world. As the third-largest listed company on Wall Street, Microsoft is just behind its competitors Apple and Nvidia in terms of market capitalization.

While operating systems and enterprise software remain the company's core business areas, the Azure cloud computing platform and Microsoft's AI products have played an increasingly important role in recent years. Azure is one of the company's fastest-growing revenue contributors – its contribution to the company's revenue in the most recently reported quarter, Q4 FY2024, increased 29% year-over-year – although we should note that it was slightly below the 30% figure. to the forecast growth of 31%.

Azure's growth is supported by both the increasing popularity of subscription-based cloud computing platforms and Microsoft's increasing integration of AI technology into the platform. Azure already has more than 200 cloud-based tools available to users, and AI integration makes them smarter and more adaptable to users' needs.

Microsoft is no stranger to AI technology. The company was an early backer of OpenAI, the company whose ChatGPT platform launched the current growing wave of generative AI offerings, and its financial support to OpenAI now stands at approximately $13 billion. While it was a valuable asset for OpenAI, it wasn't a gift – Microsoft is entitled to 75% of the AI ​​company's profits until the initial investment is recouped, and retains a 49% royalty thereafter.

In addition to supporting early AI developers and integrating AI tools into its Azure package, Microsoft is also building its own AI tools into its older software products. Its Copilot, an AI-powered online assistant, is already available as part of the latest updates in Windows and Office.

In its fourth-quarter results, Microsoft reported revenue of $64.7 billion, up 15% from the same period last year and beating expectations by $260 million. Earnings per share of $2.95 were up 10% year over year and 2 cents per share above forecast.

Looking ahead to today's 1Q25 financial report, the company is expected to report revenue of $64.6 billion and earnings of $3.10 per share. These figures would represent year-on-year growth of 14% and 3.6%, respectively.

For Bernstein analyst Mark Moerdler, who ranks in the top 3% of Wall Street professionals according to TipRanks, Microsoft's moves in cloud computing and AI are the key points.

“Microsoft has taken the big step into the cloud and achieved success that has exceeded most people's expectations. Now they are relying on AI and for most of them the decision has not yet been made. This quarter, the focus may be more on understanding the numbers than the numbers themselves. Management has re-segmented the business and shifted products and services, making it harder for investors to easily understand the results. “Basically nothing has changed except for the reporting – cloud and especially Azure are a big growth driver and if Gen AI is successful somewhere, Microsoft is the most likely candidate,” said Moerdler.

Moerdler maintains an Outperform (i.e. Buy) rating on MSFT shares, with a $500 price target that suggests a roughly 15% upside over the next year. (To view Moerdler's track record, click here)

In total, the software giant has received 30 recent Wall Street ratings, with a 27-3 split favoring Buys over Holds for a Strong Buy consensus rating. MSFT's share price is $436.67 and the average price target of $503.15 matches Bernstein's assessment. (See MSFT stock forecast)

Metaplatforms

Next we have Meta Platforms, a technology powerhouse in social media, similar to Microsoft in software. Mark Zuckerberg's vision, launched in 2004 as Facebook, has grown into a $1.5 trillion market leader. Renamed Meta Platforms in 2021, the company now serves as the parent company of Facebook, Instagram, Messenger and WhatsApp – a suite of apps that connects Meta to nearly 40% of the world's population, or approximately 3.3 billion users, on a daily basis. This reach is not only remarkable, but also represents an immense business advantage.

Social media has become a highly competitive field, with companies offering new interactive platforms and fighting for advertising space. Millennials and Generation Z have come of age in a digital environment and are conducting an increasing amount of their social interactions online – which is exactly what all social media platforms want to use.

The bottom line is that digital advertising is the be-all and end-all of meta. In the second quarter of 2024, Meta saw a 10% increase in ad impressions served and average price paid per ad, both key metrics that bode well for the future – and brought the company $39.07 billion in revenue during the period. brought dollars. Second-quarter revenue increased 22% year-over-year and was $760 million above estimates; This resulted in profit of $5.16 per share, 40 cents more than expected.

These were solid results, and Meta is working to ensure that the company continues to generate solid advertising revenue in the future. In recent years, Meta has introduced Threads, an interface designed to both emulate and challenge Twitter/X, and Reels, a video storytelling application designed to appeal to the sensibilities of a more visually oriented and tech-savvy generation of users. However, in the long term, Meta has clearly decided that its long-term success requires an expansion of AI capabilities and, in particular, generative AI.

In the area of ​​AI, Meta has introduced both a platform and a chatbot/assistant. The first of these, Llama, is based on an open source model and can therefore be customized by users. This is directly in line with the platform's purpose of providing a customizable AI tool that can be easily adapted to customers' individual needs. Meta is already included in the Llama 3 version.

Meta AI, the company's new generative AI platform, started as a chatbot and online assistant, making it a direct competitor to ChatGPT and Google's Gemini. Meta AI is available on all of the parent company's social media platforms and is quickly gaining popularity among users – at the end of September, Zuckerberg said that Meta AI had nearly 500 million monthly active users.

Looking ahead, the company will release its Q324 numbers after the market closes today. Analysts expect the company to report revenue of $40.3 billion and profit of $5.29 per share.

For Bernstein analyst Mark Shmulik, another of the Street's top 3% stock experts, Meta simply offers a solid overall outlook.

“The long-term story is as strong as ever. Looking forward, we are confident about the core business, with the expected launch of ads on Threads, a continued Reels surge, and more AI/Advantage+ advertising tools providing revenue accretion to investors given a potential TikTok ban currently is not priced in. While our 2025 cost estimates align with consensus, depreciation is the wild card where a change in server useful life could result in approximately $2.5 billion in cost savings. Concerns about the level of CAPEX intensity are overblown as we strongly believe that Meta can achieve reasonable ROIC by appropriately increasing core expenses while investing in the next big thing. Beyond 2025, investors have a wealth of exciting upside from AI to business messaging to wearables,” commented Shmulik.

To that end, Shmulik gives Meta stock an Outperform (i.e. Buy) rating and backs that up with a price target of $675 – meaning META will gain about 13% over a one-year horizon. (To view Shmulik's track record, click here)

Overall, Meta stock receives a Strong Buy rating from analyst consensus based on 47 reviews, including 42 Buys, 4 Holds, and a single Sell. Shares are trading at $599, and the average price target of $628.77 suggests potential for a modest 6% gain in the coming year. (See Meta stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.