Reformulating the "Magnificent Seven": 2 Stocks I'd Swap Out for Ultimate Upside
Key Points
Taiwan Semiconductor seems like a no-brainer addition, considering its importance to AI.
Broadcom is up and coming and could be Nvidia 2.0.
- 10 stocks we like better than Taiwan Semiconductor Manufacturing ›
The "Magnificent Seven" is a group of tech stocks that has led the market over the past few years. It 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)
These seven stocks have been excellent performers, but in the age of artificial intelligence (AI), I think two stocks deserve to be included more than another two in this list. This would shift the Magnificent Seven from being tech leaders to being AI-centric, but considering the market's direction and where nearly all the focus is, this seems like a smart idea.
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So, which two stocks are getting pulled and which two are getting added? Let's take a look.
Image source: Getty Images.
Out with Apple, in with Taiwan Semiconductor
It may seem like blasphemy to remove Apple from any leading tech stock list, but I think it's appropriate here. Apple has completely dropped the ball on any AI rollout and is taking the easy way out by deploying Google's Gemini to all of its devices.
We'll see what AI looks like with Apple's products, but so far, nearly every Android device is light years ahead in this important feature set. Because it's merely going to be adopting others' AI tools for its devices, I think including it on a list of AI-centric stocks doesn't jibe with the makeup. So I think Apple should be removed from the AI-centric Magnificent Seven.
In its place, I'm adding Taiwan Semiconductor (NYSE: TSM). Taiwan Semiconductor is actually the primary chip manufacturer for all of Apple's custom-designed chips, so it isn't completely separate from Apple's success. However, it's also the primary chip manufacturer for Nvidia and other chip designers, positioning it nicely to take advantage of rapid AI growth.
Another factor is Apple's poor growth. Although its latest quarter was strong, Apple has put up several years of lackluster growth. Compared to TSMC's growth, Apple looks pretty disappointing.
TSM Revenue (Quarterly YoY Growth) data by YCharts
TSMC expects its compounded annual growth rate from 2024 to 2029 to be in the 25% range, which will likely be significantly higher than Apple's. As a result, I think that Taiwan Semiconductor is a better member of the Magnificent Seven than Apple.
Broadcom replaces Tesla
Tesla has well-documented struggles, as electric vehicles (EVs) have lost favor with consumers. Additionally, it has a lot more invested in AI technology than Apple. But with its struggling business and low profit, Tesla doesn't belong in the Magnificent Seven.
NVDA Net Income (TTM) data by YCharts
Even if you used Tesla's most profitable quarter in the past five years (15% profit margin), at today's $98 billion revenue, that would only equate to just shy of $15 billion in net income -- a far cry from any other stock in the Magnificent Seven.
In its place, I'd add Broadcom (NASDAQ: AVGO). Broadcom is making waves in the market as a design partner for custom AI chips. It already has several prominent clients (like Alphabet), and more are being added each quarter. It expects to see rapid growth during the next few years, with the average Wall Street analyst projecting 63% growth in fiscal year (FY) 2026 and 52% in FY 2027. As for market cap, it's already about a $2 trillion company -- much larger than Tesla at $1.4 trillion.
During the past 12 months, it has generated $25 billion in net income. While that's a lot more than Tesla, Broadcom still has a ways to go to match the other six members. But after its strong expected growth next year, I think it will look right at home among the Magnificent Seven.
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Keithen Drury has positions in Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.
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