This "Magnificent Seven" Stock Could Be Overdue for a Big Rally

The "Magnificent Seven" are an illustrious group of tech stocks that have made for incredible investments over the years. While chip giant Nvidia leads the way with its monstrous $5.8 trillion valuation, there are others within the group that haven't been soaring of late. Some have even underperformed the market this year.

There's one stock in particular within the group that I think is overdue for a big rally, and which may be the best of the bunch to buy today, and that's Amazon (NASDAQ:AMZN). Here's why the tech stock could be a slam-dunk buy right now.

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Amazon suddenly looks ridiculously cheap

It hasn't been uncommon to see Amazon's stock trade at incredibly high earnings multiples in the past. While its recent earnings numbers did get a boost from investments in other companies, the stock's valuation with respect to earnings remains incredibly low compared to what it has averaged over the past decade.

AMZN PE Ratio data by YCharts

There have been fluctuations along the way, but for much of the past decade, the tech giant has traded at more than 50 times its earnings -- it's nowhere near that today.

Since the start of 2024, Amazon's stock has risen by 65%, only narrowly outperforming the S&P 500 over that time frame, which is up by 63%. More of a rally is arguably warranted for Amazon, particularly given its strong growth opportunities related to artificial intelligence (AI).

The company is in the early innings of its AI growth story

For years, it's been Amazon Web Services (AWS) that's been the big driver of growth for Amazon's stock. That area of its business remains strong -- the segment grew by 37% in the company's June quarter, while the overall business generated 20% top-line revenue growth.

Not only is AWS looking more promising due to AI, but Amazon has also experienced encouraging growth in its emerging chip business. The company reported triple-digit growth for both its chip business and AWS's AI business. Both are at annual revenue run rates exceeding $25 billion.

Amazon may already be a behemoth with $776 billion in revenue over the past four quarters, but it's still growing, and AI could unlock the next phase of its growth story. It arguably deserves to be trading at a much higher earnings multiple given its tremendous growth opportunities, which is why I believe it's overdue for a big rally. Now may be an excellent time for long-term investors to simply buy this Magnificent Seven stock and forget about it.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.