If you’re a fan of Westerns, you may think of the silver screen when someone says The Magnificent Seven — a film by the name came out in 1960. But the name also refers to a group of stocks that have powered index gains through this bull market so far. Each of these companies is involved in the industry of technology, and they also have invested in the hottest tech area of all in recent times: artificial intelligence (AI).
These seven players have seen their shares climb along with revenue — and investors are generally optimistic about these companies’ long-term prospects too. After this top performance, with most Magnificent Seven players advancing in the double digits over the past year, you may expect their valuations to be sky-high. But that isn’t necessarily the case. Let’s meet the cheapest stock in the Magnificent Seven right now — and consider whether it’s a buy.
Image source: Getty Images.
Investors have been buying the Magnificent Seven
First, though, a quick look at the members of this elite list of movers. And they are: Alphabet (GOOG -0.57%) (GOOGL -0.79%), Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Each of these stocks, except Microsoft, has climbed in the double digits over the past year. This is as investors piled into companies developing or using AI products and services with the idea that this technology could generate explosive growth over time.
Some of these players already are seeing the benefits. For example, Nvidia, the top maker of AI chips, has seen revenue climb in the double or triple digits quarter after quarter. And Amazon, the world’s top cloud services provider, says its cloud unit already is delivering an annual revenue run rate of $115 billion thanks to its AI offerings.
Now, let’s turn to the question of valuations. Certain members of the Magnificent Seven trade at levels some investors may consider high — such as Tesla, trading for more than 120 times forward earnings estimates. But one particular Magnificent Seven stock, in spite of climbing 31% over the past year, today trades for only 20 times forward earnings estimates — the cheapest of the group by this measure.
I’m talking about Alphabet, owner of the world’s most popular search engine, Google, and the high-growth cloud services provider, Google Cloud. Though Alphabet’s stock has climbed, earnings too have advanced recently and over the long term. This is thanks to the company’s dominance in search and the fact that this leads to strong revenue growth — advertisers pay to advertise their products and services across Google, where they know they can easily reach us.
Alphabet’s commitment to AI
Though Alphabet dominates the search market, with about 90% share, and has proved its ability to grow revenue over time, the company hasn’t been sitting still. Instead, it’s invested heavily in AI — and continues to do so — to boost its future revenue opportunities. Alphabet’s large language model, Gemini, is used across its business, from improving search results and the advertising experience for advertisers to serving the customers of its cloud business.
In the recent quarter, Alphabet said demand for its AI services is growing, with cloud customers using more than eight times the compute capacity for tasks like training and inferencing than they did a year and a half ago. The company continues to increase investment in AI so that it can serve increasing demand. It announced $75 billion in capital spending for this year to support technical infrastructure such as servers, data centers, and networking.
A potentially $1 trillion market
This spending may not please investors right at this moment, but it’s important to look at the situation through a long-term lens. Today’s $200 billion AI market is expected to reach more than $1 trillion by the end of the decade, and companies that position themselves well now are most likely to benefit. So I see Alphabet’s move as a wise one from that perspective.
One element that may weigh on Alphabet is its ongoing antitrust battle. A U.S. district judge ruled last year that Alphabet has illegally used its search position to crush competition — but the company plans to appeal, and considering past antitrust cases in the field, I’m not overly worried about the final outcome.
Now, let’s get back to our question: Alphabet is the cheapest of the Magnificent Seven now. But is it a buy? I say yes. Even though the antitrust case may represent some headwinds, overall, Alphabet’s leadership in its markets, its earnings track record, and its future prospects thanks to smart AI investment and innovation make me optimistic about the company — and stock performance over the long term.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon and Tesla. 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.