Key Points
The “Magnificent Seven” is a group of stocks that make up the largest companies in the world. Their success has been a hallmark in the market for the past few years, but I’m not bullish on every single one of them right now. This group consists of:
- Nvidia (NASDAQ: NVDA)
- Apple (NASDAQ: AAPL)
- Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)
- Microsoft (NASDAQ: MSFT)
- Amazon (NASDAQ: AMZN)
- Meta Platforms (NASDAQ: META)
- Tesla (NASDAQ: TSLA)
Of those seven stocks, I’m only bullish on five of them. So, which ones are buys and which are sells? Let’s take a look and find out.
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Two stocks that I’m passing on
Two stocks in this group I’m passing on are Apple and Tesla. The reason is simple: valuation. These two are some of the most expensively valued stocks in the group, and I can’t justify paying up for them.
Data by YCharts.
Tesla is very expensive because the market is pricing it stock as an AI, robotics, and energy company rather than as an automaker, even though nearly all of its revenue is auto sales related. Remove it from the list, and you can better see how expensive Apple is as well.
Data by YCharts.
Apple doesn’t have any major headwinds in its business, and it’s not growing incredibly fast, so it’s just an expensive stock. It could have some rising headwinds, as AI demand is pushing prices of computing commodities (like memory chips) higher, which could lower margins and eat into Apple’s profits, pushing the valuation even higher.
These two aren’t the most attractive buys right now, and the other five look far better.
These five stocks remain strong buys now
That leaves Nvidia, Alphabet, Amazon, Microsoft, and Meta Platforms as smart buys. These five are also the cheapest of the group and are doing much better (in terms of revenue growth) than the other two. Nvidia’s jaw-dropping 85% year-over-year growth rate skews this chart, so I’ve removed it, but don’t forget that when it comes to revenue growth, Nvidia is king.
Data by YCharts.
Meta comes in with the next-highest growth rate, followed by Alphabet, Microsoft, and Amazon, just barely edging out Apple. However, I believe Amazon’s growth rate could accelerate over the next few years as its major investment in cloud computing resources comes to life. CEO Andy Jassy has already informed investors that the company has clients lined up to use the $200 billion in new computing capacity, which will lead to explosive growth for Amazon. Likewise, Microsoft and Alphabet are spending big on AI computing capacity to expand their computing footprints, and their revenue growth rates should accelerate over the next few years as well.
Meta Platforms is the odd one out, as it currently doesn’t have a cloud computing division. Still, I’m unsure if it’s necessary because its ad business is growing at a rock-solid 33% clip. However, rumors are swirling that Meta could be launching a cloud computing business soon, which would open up another revenue stream for the company, making it a smart investment pick here as well.
With all four of these AI hyperscalers spending big money to increase AI computing capacity, one company in this group stands to benefit the most: Nvidia. Nvidia makes GPUs that are commonly deployed in data centers, and the massive increase in AI computing power demand is causing its growth to skyrocket. In its last quarter, Nvidia posted 85% year-over-year growth. In the current quarter, Wall Street expects nearly 100% year-over-year growth. That’s major, yet Nvidia believes there could be more coming.
This year, the AI hyperscalers expect to spend around $650 billion on data center capital expenditures. However, next year, Nvidia believes that figure will clear $1 trillion. That’s a bold call, and if it’s correct, then Nvidia’s stock likely has the most upside of any stock in the Magnificent Seven, making it a no-brainer buy today.
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Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
