This is the Best Bargain in the “Magnificent Seven” Right Now

The "Magnificent Seven" technology stocks have powered the S&P 500 higher in recent years, and this is thanks to their position in the growth area of artificial intelligence (AI). Most of these players are involved to a certain degree in the field, and at the same time, they offer investors well-established, profitable businesses. So, when you buy a "Magnificent Seven" stock, you gain the safety of a company that's proven itself and the potential for a new wave of growth ahead.

You might expect these particular stocks to trade at lofty valuations, but many of them actually are quite reasonably priced right now. And one in particular -- a company that's already delivering billions of dollars in revenue from its AI efforts -- is dirt cheap. This is the best bargain in the "Magnificent Seven" right now. Let's check it out.

Image source: Getty Images.

A group of AI leaders

First, let's start out by identifying these exciting tech players. They are Apple, Amazon, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms, Microsoft, Nvidia, and Tesla. They specialize in different tech fields -- from smartphones to cloud computing and even electric vehicles -- but they each are involved in AI to some extent, so they may benefit as this technology evolves.

Of this bunch, today, the best bargain is also the cheapest in relation to forward earnings estimates, and this is Alphabet.

Trading at only 16x forward earnings estimates, it looks dirt cheap considering its track record of growth and long-term prospects.

AAPL PE Ratio (Forward) data by YCharts

Most of us know Alphabet best for something we may use daily. And that's Google Search. The platform is the most popular search engine worldwide, with more than 90% market share, and is also the key to Alphabet's billion-dollar revenue. Advertisers pay to promote their products and services to us across the Google platform, and this has created a steady revenue growth engine for Alphabet.

In the recent quarter, Google ad revenue climbed 14% to more than $81 billion -- this is on a total of $119 billion in revenue for the company.

So, this is a revenue stream the company can rely on, and that creates a certain sense of safety for investors. This is a long-proven business model that works.

The potential for explosive growth ahead

Meanwhile, investors also may benefit from potentially explosive growth in the quarters to come as Alphabet has become a major player in AI. The company has built its own large language models, such as Gemini, and these are helping Alphabet in many ways. Alphabet's AI is making Google Search better, improving the ad experience and results for advertisers, and expanding the offerings of Google Cloud. Today, customers rush to Google Cloud for both AI and non-AI products and services, and all of this is significantly lifting revenue.

For example, in the second quarter, Google Cloud revenue surged 82% to more than $24 billion. In the second quarter of last year, cloud revenue already was considered strong with 32% growth to reach about $13 billion -- but this now seems small compared to today's figures.

And just recently, Alphabet announced more good news. The Gemini app surpassed one billion monthly users, a move that makes it Alphabet's fastest-growing product ever. This is key because it shows users are spending more and more time on Google, something that should support growth in advertising.

Alphabet stock has advanced about 8% so far this year, but with this performance, it's underperforming the market.

Why hasn't the stock climbed higher? Investors have worried about tech companies' heavy investments in AI infrastructure and whether the revenue opportunity will make it all worthwhile. This has prompted some to shy away from players such as Alphabet, which has poured billions into compute and data centers.

I see this as creating a fantastic buying opportunity. Demand for AI remains high, and this is likely to continue as AI is applied to real-world needs. All of this favors ongoing growth at Alphabet, and this, along with current valuation, makes it the best bargain in the "Magnificent Seven."

Adria Cimino has positions in Amazon 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.