Ranking the Best "Magnificent Seven" Stocks to Buy for 2026. Here's My No. 1 Pick.

Welcome to the final article in a seven-part series ranking the best "Magnificent Seven" stocks to buy for next year.

To recap, Tesla was in last place, followed by Apple as the sixth seed, Amazon in fifth, Alphabet fourth, Nvidia third, and Meta Platforms second.

Here's why Microsoft (NASDAQ: MSFT) takes the gold as the best Magnificent Seven stock to buy in 2026, and my top stock from the entire S&P 500 to buy and hold for at least the next three to five years.

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Microsoft is a high-margin cash cow

Microsoft doesn't have as much growth potential as Magnificent Seven names like Nvidia or Tesla. However, what makes it attractive is its ultra high profit margins.

Data by YCharts.

Microsoft is the No. 2 player in cloud computing, behind Amazon Web Services. It features a comprehensive suite of integrated software tools, including Microsoft 365 (Word, Excel, PowerPoint, Microsoft Teams, OneDrive, SharePoint, and AI capabilities through Copilot). Its personal computing products include Surface and Windows-supported devices from a variety of brands. Microsoft owns LinkedIn and GitHub. And it's a major player in gaming with Xbox and its ownership of Activision Blizzard.

Mature tech companies often over-diversify and put innovation on the back burner, leading to slower growth and margin compression. Not Microsoft. Its growth is accelerating, and its operating margin is at a 10-year high.

Delivering results without taking on too much risk

With a 29.8 forward price-to-earnings ratio, Microsoft isn't quite as cheap as Meta Platforms, but it's still reasonably priced within the context of its historical valuation.

Microsoft also has the best track record of the Magnificent Seven for delivering consistent, high-margin growth and returning capital to shareholders through share repurchases and dividends.

Its outstanding share count has been ticking down over the years because buybacks have exceeded stock-based compensation. On Sept. 15, management announced a 10% dividend increase -- marking the 16th consecutive year the company has boosted its payout. It has the highest yield among the Magnificent Seven at 0.8%.

Microsoft also has one of the best balance sheets of the Magnificent Seven, ending its most recent quarter with $66.6 billion in cash, cash equivalents, and short-term investments net of long-term debt.

As flawless as it gets

There are no perfect businesses, but Microsoft is arguably as close as it gets among U.S. companies.

Going into 2026, the investment thesis has no weaknesses. The company is high-margin, diversified, innovative, and benefits from growth trends across the tech landscape, including AI.

That means Microsoft is well positioned, regardless of what happens in the years to come.

If there's a recession, Microsoft can weather it.

If there's a sustained AI boom, it will benefit.

If Microsoft-backed OpenAI loses market share to Alphabet's Gemini or Anthropic's Claude, the company can still thrive.

Microsoft may not produce the largest gains of the Magnificent Seven over the next three to five years, but it is by far the best positioned to consistently outperform the S&P 500 over the long term.

Add it all up, and Microsoft has the potential to be a foundational holding for both growth and value investors alike.

Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.