Ranking the Best "Magnificent Seven" Stocks to Buy for 2026. Here's My No. 5

When you're looking at the Magnificent Seven stocks, there's a clear outlier. Most of them are straight tech companies that are deeply involved in creating artificial intelligence infrastructure, hardware, or software that either makes AI work better or provides unique services.

Then there's an automotive company, Tesla (NASDAQ: TSLA), that is the leading manufacturer of EVs and rode a wave of investor enthusiasm to be the biggest automaker in the world by market capitalization. Tesla currently has a market value of $1.6 trillion.

But Tesla has had an interesting year as CEO Elon Musk watched auto sales (and profits) drop. He got involved in domestic and global politics, and the company's still feeling the effects of that. Competition is fierce, and it's a challenging time to be an automaker.

However, Tesla is much more than just a car company. It has massive AI aspirations of its own, and that's why Tesla is my fifth-ranked Magnificent Seven stock to buy for 2026.

This is the third in a series of articles ranking the best Magnificent Seven stocks -- the grouping of companies that collectively represent one-third of the weighting of the S&P 500, and therefore have an oversize impact on the stock market. In previous articles, I discussed why Apple is No. 7 on the list, and Amazon took the sixth spot.

Here's a closer look at Tesla and why it's deserving of the No. 5 ranking.

Image source: Tesla.

About Tesla stock

Tesla makes most of its money selling electric vehicles. But the problem is that it's not selling as many cars now as it did in previous years.

Yes, third-quarter sales set company records for deliveries with 497,099 vehicles. But that was attributed to a $7,500 electric vehicle tax credit that expired on Sept. 30 -- customers merely accelerated their purchases to beat the deadline.

Source: Tesla

That had a dramatic impact on Tesla's revenue numbers, which saw massive drops in the first two quarters of the year.

Source: Tesla

And to make things even worse, Tesla's profit margins dropped during the same period, as competition from other automakers forced Tesla to lower its prices.

Source: Tesla

But competition is only part of the problem. Tesla faced severe blowback this year after Musk leapt wholeheartedly into politics, pouring millions of dollars into President Donald Trump's successful campaign and appearing with him at several events. Musk spent the first several months of Trump's second term as a close confidant, running the newly formed Department of Government Efficiency (DOGE) with a mission to reduce the size of government.

DOGE was short-lived, as was Musk's Washington career, but the damage was done. Musk has publicly lamented that his federal government role hurt his companies, including Tesla. A study by Yale University professors concluded that Musk's political activities in the U.S. cost Tesla more than 1 million vehicle sales.

What's changing for Tesla in 2026

I admit, there's a lot to unpack about Tesla, and this is why the stock has been a disappointment for much of the year. But it's also important to acknowledge that the company is building some serious momentum, leading to a sharp 13% gain in stock price over the last three months.

Because Tesla is developing an AI product of its own with its full self-driving (FSD) software that some analysts believe will be a revolutionary change for the industry. Tesla's newly updated software makes its Robotaxi app downloadable on iOS in the U.S. and Canada and is a significant step toward allowing Tesla users to one day to monetize their Teslas by making them available as robotaxis when they aren't in use.

Melius Research has predicted that Tesla is approaching a tipping point in FSD software in which incremental progress will "suddenly" give way to mass adoption of autonomous driving. When widespread rollout arrives with Teslas suddenly on the roads as robotaxis, "it will still shock most people," analyst Rob Wertheimer wrote in a research note.

Musk said that Tesla will be in a position to expand its production when that happens. "We have millions of cars out there that, with a software update, become full self-driving cars," he told analysts. "You know, we're making a couple million a year. In fact, with the advent of what we see now as a clarity on achieving full self-driving, unsupervised full self-driving, I should say, I feel confident in expanding Tesla's production. That is our intent to expand as quickly as we can our future production."

Why Tesla is No. 5

Tesla is still working on turning full self-driving into autonomous driving, but as Wertheimer writes, it's making rapid progress and already has a fleet of millions of cars at its disposal to flood the market.

And we've not even talked about Tesla's other massive opportunity -- the Tesla Optimus autonomous robot that Musk is attempting to develop for use in homes and factories. Musk, when negotiating a massive shareholder-approved pay raise this year, repeatedly referred to his "robot army" as a potential source of tireless unpaid labor that can be trained to do nearly anything. Part of Musk's massive incentive plan at Tesla, which is valued at as much as $1 trillion with stock options, is contingent on his successfully building 1 million Optimus robots.

So, there's a lot going on with Tesla. As I said, it's not just a vehicle company. I don't expect Tesla to dramatically improve its margins in 2026, but I will be watching closely as the company continues its AI work. I believe 2026 will be a good year for investors to begin accumulating Tesla stock in advance of what could be a seminal moment for Musk and his company.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Tesla. The Motley Fool has a disclosure policy.