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

Source The Motley Fool

Key Points

Amazon's stock is trading at a historically low valuation with respect to earnings.
Its growth rate, meanwhile, remains strong and could accelerate due to artificial intelligence.
Since 2024, the tech stock has barely outperformed the S&P 500.
10 stocks we like better than Amazon ›

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.

Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »

Orange robotic arm lifting a cardboard box in a warehouse aisle lined with stocked shelves.

Image source: Getty Images.

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.

Should you buy stock in Amazon right now?

Before you buy stock in Amazon, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $361,650!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,437,517!*

Now, it’s worth noting Stock Advisor’s total average return is 936% — a market-crushing outperformance compared to 213% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.

See the 10 stocks »

*Stock Advisor returns as of October 5, 2026.

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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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