Meet the 5 "Magnificent Seven" Stocks That Are Brilliant Buys Now
Key Points
Nvidia, Meta, and Microsoft trade for relatively cheap valuations.
Alphabet and Amazon are seeing huge demand for AI computing infrastructure.
- 10 stocks we like better than Nvidia ›
The "Magnificent Seven" cohort of stocks has done quite well over the past few years, with many of them thriving from the massive AI building spree going on. However, these stocks have been unloved as of late, and many are well off their all-time highs. This group of seven stocks is made up of:
- Nvidia (NASDAQ: NVDA)
- Apple
- Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)
- Microsoft (NASDAQ: MSFT)
- Amazon (NASDAQ: AMZN)
- Meta Platforms (NASDAQ: META)
- Tesla
Of those seven stocks, I think five are great buys. Let's take a closer look.
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Image source: Getty Images.
1. Nvidia
Nvidia may be the largest company in the world, but its stock looks like a screaming buy. It only trades for 22.2 times forward earnings and is expected to deliver incredible growth during this year. Wall Street analysts project Nvidia's revenue will rise at a 70% pace this year, showcasing the huge demand for its graphics processing units (GPUs).
Despite this, Nvidia is down more than 10% from its all-time highs. I think right now is an excellent investment opportunity for Nvidia, as AI demand is still expected to rise for many more years.
2. Alphabet
Alphabet is similarly down around 10% from its highs, giving it a breather from when it was setting new record highs day after day toward the end of last year. Last year at this time, Alphabet's AI aspirations were a bit of a joke. Now, Alphabet and its generative AI model, Gemini, are among the top picks, and Alphabet has solidified itself as a force to be reckoned with in the generative AI arms race.
Alphabet has the resources to outcompete nearly every competitor in this arena, making it a great long-term AI pick.
3. Microsoft
Microsoft may be my favorite pick in this group of five, mainly because of how cheap it is. The stock is down more than 25% from its all-time high, and the valuation is also absurdly cheap compared to where it has traded at over the past decade.
MSFT PE Ratio data by YCharts.
It's not often that Microsoft reaches a valuation of about 25 times earnings, and every time it has, it has been an excellent buying opportunity. I think Microsoft is a top stock pick right now, as its business is still excelling, but the stock has just fallen out of favor with the market.
4. Amazon
Amazon is down around 15% from its all-time high, but it's starting to come roaring back as an AI investment pick. While most may point to its commerce business as why they own Amazon stock, the reality is that Amazon Web Services (AWS), its cloud computing wing, is the best reason. In the fourth quarter, it grew revenue at a 24% pace, the best quarter in over three years. This helped boost Amazon's profitability and growth overall. During Q4, AWS made up 50% of Amazon's operating profits.
AWS is a top reason to invest in Amazon's stock. With massive AI demand coming down the pipeline and Amazon's custom AI chip solutions exploding in popularity, I have no doubt that Amazon is poised to continue to be an excellent investment. Today's discount is a gift to investors.
5. Meta Platforms
Meta Platforms is the cheapest stock on this list. It trades for 20.9 times forward earnings, which is less than the S&P 500 (SNPINDEX: ^GSPC) trades for (21.2 times forward earnings).
Despite that, Meta is also among the fastest-growing members of this list, trailing only Nvidia.
NVDA Revenue (Quarterly YoY Growth) data by YCharts.
However, the market is a bit concerned about its hefty AI spending and its future outlook, which is why the stock trades at a discount to its peers. While these concerns may be valid, I think they are drowning out the fact that Meta is a great business that's still generating profits. While those profits are being used for AI capabilities, those investments are essentially required to stay relevant in today's AI-driven world.
I think Meta could make a strong comeback throughout the year, making it a great investment option now.
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Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla and is short shares of Apple. The Motley Fool has a disclosure policy.
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