Following a year of outperformance in the Magnificent 7, most analysts expect new names to lead the way in 2024. Deepwater Asset Management's Gene Munster agrees with the consensus and has identified two underappreciated AI beneficiaries that could charge higher this year.

What To Know: The Magnificent 7 mega-cap tech stocks led markets higher last year with remarkable gains. Nvidia Corp (NASDAQ:NVDA) was the best performer of the group with gains of more than 235%. Apple Inc (NASDAQ:AAPL) was the laggard among the mega caps, but it still jumped nearly 50% in 2023. 

Moving into 2024, most analysts expect the Magnificent 7 to take a back seat to the rest of the market and Munster is no different. 

"I agree with that consensus. I think the substance of the performance is really going to come with that sub-$20 billion market cap," Munster said Tuesday on CNBC's "Squawk Box."

There is a "seismic shift" starting to brew in AI and some of the smaller market cap companies are going to benefit this year, which will ultimately lead the Russell 2000 to outperform the S&P 500 in 2024, he said. 

Check This Out: Stocks Fall, Dollar Jumps: Risk Sentiment Takes Hit On First Trading Day Of 2024

Why It Matters: Munster believes tech stocks are heading into a three- to five-year bull run, but he's not betting on the usual suspects to lead the charge in 2024.

He told CNBC he recommends a dumbbell approach where investors maintain some exposure to the mega caps, but also buy some of the underappreciated AI names like Unity Software Inc (NYSE:U) and Etsy Inc (NASDAQ:ETSY). 

Unity is known for game development, but the company is starting to work on building spatial environments using AI technology, which could help lift the stock, Munster said. 

Etsy has been somewhat "forgotten," but the e-commerce company is slated to start implementing AI to help build more creative products, which should bode well for the stock, he added. 

On the other side of the barbell, Munster told CNBC that Alphabet Inc (NASDAQ:GOOG) and Apple are his top picks in the Magnificent 7 for 2024.

Read Next: Racing For GenAI Dominance: 2024 Competition Intensifies, Here Are 3 Likely Winners

U, ETSY Price Action: At publication time, Unity shares were down 5.5% at $38.62 while Etsy shares were down 0.3% at $80.73, according to Benzinga Pro.

Photo: Mohamed Hassan from Pixabay.