Bull Market Buys: The 1 Magnificent 7 Tech Stock You Need

Down 15% from all-time highs, Alphabet is a Magnificent 7 stock that trades at a 25% discount to consensus price target estimates.

| More on:

The “Magnificent Seven” are the seven largest tech-focused companies that have dominated the broader market returns over the past decade. The term was coined by Bank of America analyst Michael Hartnett and includes companies such as Microsoft, Apple, Nvidia, Tesla, Amazon, Meta Platforms, and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL).

These mega-cap giants are part of verticals such as artificial intelligence (AI), cloud computing, social media, digital advertising, e-commerce, semiconductors, and electric vehicles. Several of these tech trends have allowed companies to deliver outsized gains to shareholders. In the last year, the Magnificent Seven Group has returned close to 60% to investors, outpacing the S&P 500 index, up 29%.

Should you invest in the Magnificent Seven?

Several investors expect the Magnificent Seven to continue to lead stock market returns in the upcoming decade as each of these companies is positioned to capitalize on megatrends, enabling them to grow at an enviable pace.

For instance, global enterprises are still in the early stages of digital transformation which should drive demand for cloud computing higher, benefitting companies such as Microsoft, Amazon, and Alphabet.

The AI megatrend has just begun, and the market is forecast to expand to more than US$1 trillion by the end of 2030. Each of the Magnificent Seven companies is investing heavily to enhance their AI capabilities and secure an early mover advantage.

While increasing exposure to these mega-cap giants makes sense, let’s see why I remain bullish on Alphabet stock right now.

The bull case for GOOGL stock

Valued at US$2 billion by market cap, Alphabet is the parent company of Google, the largest digital advertising platform in the world.

Despite its massive size, Alphabet’s revenue grew by 14% year over year to US$84.74 billion in the second quarter (Q2) of 2024. Comparatively, Wall Street forecasts Q2 sales to be US$84.19 billion. Its adjusted earnings per share of US$1.89 was also higher than estimates of US$1.84 in the June quarter.

Alphabet’s Google Cloud business surpassed the US$10 billion milestone for the first time in Q2, and the segment also reported an operating profit of US$1 billion.

Notably, Alphabet generates most of its sales from online ads, which rose to US$64.62 billion in Q2, up from US$58.14 billion last year. Ad sales have been under the pump in the previous three years due to higher inflation, rising interest rates, and slower consumer spending, all of which have tightened marketing budgets.

Further, YouTube remains the largest video platform globally but faces competition from short video platforms, including TikTok and Instagram.

Alphabet’s Other Bets business should help the company accelerate top-line growth. This segment includes Waymo, a self-driving entity that raked in US$365 million in sales in Q2, up from US$285 million last year. Alphabet emphasized that it would invest an additional US$5 billion in Waymo to expand its self-driving capabilities.

Is this Magnificent Seven stock undervalued?

Analysts tracking Google expect sales to grow by 13.2% to US$347.3 billion in 2024 and 11.2% to US$386 billion in 2025. Moreover, adjusted earnings are forecast to expand from US$5.8 per share in 2023 to US$8.71 per share in 2025. So, priced at 18.6 times forward earnings, GOOGL is the cheapest stock among the Magnificent Seven.

Down 15% from all-time highs, GOOGL trades at a 25% discount to consensus price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

More on Tech Stocks

Canadian Dollars bills
Dividend Stocks

2 Incredibly Cheap Canadian Growth Stocks to Buy Before It’s Too Late

Buying cheap stocks needs patience and a long-term investment approach. Only then can they give you extraordinary returns.

Read more »

dividend growth for passive income
Tech Stocks

2 Canadian Growth Stocks Set to Skyrocket in the Next 12 Months

There are some great growth stocks out there for investors to consider, but of them all these two look like…

Read more »

A small flower grows out of a concrete crack.
Tech Stocks

Got $3,000? 2 Monster Growth Stocks to Buy Right Now Without Hesitation 

Here is a method to identify monster growth stocks in which you can invest $3,000 and let your money grow…

Read more »

hand stacks coins
Tech Stocks

2 Stocks That Could Turn $100,000 Into $1 Million

When it comes to winning growth stocks, these two have made millionaires time and again.

Read more »

AI microchip
Tech Stocks

2 Canadian AI Stocks Poised for Significant Gains

If you are looking to ride a decisive bull market phase from the beginning, discounted AI stocks in Canada might…

Read more »

Woman in private jet airplane
Tech Stocks

Could This Undervalued Canadian Stock Be a Millionaire-Maker? 

Futuristic growth stocks can be your ticket to millionaire status.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Tech Stocks

Best Tech Stocks for Canadian Investors in the New Year

Three tech stocks are the best options for Canadians investing in the high-growth sector.

Read more »

doctor uses telehealth
Tech Stocks

What to Know About Canadian Small-Cap Stocks for 2025

Small cap stocks are a great way to experience outsized gains. Here is what you need to know about small…

Read more »