My Top 2 Mega-Cap Stocks to Buy After Microsoft's Latest Pullback
Key Points
Google parent Alphabet has reasserted itself in the AI race.
Minor headwinds have taken Amazon's stock to a surprisingly low valuation.
- 10 stocks we like better than Alphabet ›
So far in 2026, Microsoft (NASDAQ: MSFT) is the worst-performing stock in the "Magnificent Seven." Slower growth in its cloud platform Azure and the staggering costs to stay competitive in the AI race have pressured the stock amid a relatively high valuation.
Fortunately, this does not mean megacap stocks are in trouble, and under current conditions, these two tech stocks are arguably worth investor consideration.
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1. Alphabet
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) might be a surprise pick, considering it's a competitor of Microsoft in the cloud and is also investing heavily in AI infrastructure. The Google parent spent $91 billion on capital expenditures (capex) last year and pledged to spend $175 billion to $185 billion this year.
However, the difference with Microsoft is that investors have seen a more obvious payoff. Alphabet's Google Gemini AI engine was a later entry in this area, but it has made huge competitive strides, and some users prefer it to ChatGPT.
Moreover, Google Cloud continues to outpace the growth rate of its massive digital ad platform, implying a heavier reliance on AI. Additionally, many investors expect Alphabet's autonomous driving company Waymo to be a major revenue driver in the coming years, further boosting its reputation.
Amid some investor skepticism about AI, the stock has delivered a flat performance for the year. Still, its P/E ratio of 29 closely approximates the S&P 500 average, and given its growth prospects, that is probably a low enough valuation to continue attracting investor interest.
2. Amazon
Like Microsoft, investors have become leery of Amazon (NASDAQ: AMZN) due to its massive capex allocations. The company pledged $200 billion in capex spending for 2026 after spending almost $132 billion the previous year.
Additionally, Amazon needs fuel and electricity for both its logistics and delivery networks. That means higher energy costs may weigh more on it than on its competitors.
Nonetheless, investors have many reasons to believe the company's headwinds are short term. The primary growth and profit driver for Amazon, Amazon Web Services, has experienced more rapid growth over the last couple of quarters. That indicates that the company's massive capex spending may soon begin to pay off.
Furthermore, Amazon's e-commerce segments also capitalize on AI in ways ranging from product selections to a more efficient supply chain. Those segments also include enterprises that rely partially on AI, such as third-party seller services, subscriptions, and digital advertising, which typically report double-digit revenue growth.
Moreover, the company's stock trades at a 30 P/E ratio. Until recently, Amazon routinely maintained an earnings multiple above 50, and buying the stock at lower multiples has always paid off in the past. Considering that factor and the signs that the AI investments are paying off for the company, now may be an excellent time to add shares.
Should you buy stock in Alphabet right now?
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
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