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You are at:Home » If you could only buy one Magnificent Seven stock in 2025, this would be it
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If you could only buy one Magnificent Seven stock in 2025, this would be it

Adnan MaharBy Adnan MaharJuly 1, 2007No Comments6 Mins Read0 Views
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Ever since artificial intelligence (AI) emerged as the next big thing in capital markets a few years ago, the term “Magnificent Seven” started gaining traction. The name is used to collectively refer to the world’s largest technology businesses, each carving out its own pocket within the broader AI market.

Here are the returns for each Magnificent Seven stock in 2024:

With the exception of Microsoft, all of these mega-tech stocks outperformed the S&P 500 and the Nasdaq Composite Index last year. Despite these market-beating returns, I see one stock in the Magnificent Seven as an excellent opportunity.

Below, I reveal my top picks for the Magnificent Seven and explain why I think this company will emerge as one of AI’s most lucrative opportunities over the long term.

Semiconductor stocks like Nvidia are all the rage right now, and it’s nearly impossible not to see headlines and financial shows featuring Tesla’s two major areas of expertise: self-driving cars and humanoid robotics.

But when it comes to mega-cap tech stocks, my top pick is e-commerce and cloud computing giant Amazon.

Over the past few years, Amazon has been quietly building a remarkable AI ecosystem. It all started with a $4 billion investment in an AI startup called Anthropic. Anthropic’s large language model (LLM) Claude is considered one of ChatGPT’s biggest sources of competition. Following the initial investment, Amazon poured another $4 billion into Anthropic in November, bringing total funding to the startup to $8 billion.

A key tailwind for Anthropic is its use of Amazon’s Trainium and Inferentia chips to train its generative AI models. Anthropic also relies heavily on Amazon Web Services (AWS), Amazon’s cloud division.

This partnership is a very smart one for Amazon, and it’s all in the numbers. Over the past few quarters, our revenue from AWS has increased significantly and, more importantly, our operating income has also increased.

The move generated significant free cash flow for Amazon, which the company is using to double down on its AI investments by building out data centers and gradually ramping up its internal chip infrastructure.

Stock price chart moves upward to the right
Image source: Getty Images.

While AI is a kind of catalyst for many businesses, I would argue that there is some kind of measurable upper limit to its potential. What I’m saying is that AI can be a channel that leads to more software sales or more user engagement across social media platforms, depending on the specific end market of the business in question. That’s what it means.

the story continues

Amazon has the potential to leverage AI in its e-commerce marketplace, AWS, grocery delivery services, streaming, advertising, and more. Because the company operates across such a large ecosystem, I’m not sold on the idea that AI has reached maturity or will become a product of diminishing returns for Amazon.

I think this is doubly true given that most of Amazon’s core products are aimed at constantly attracting and retaining users and customers to the platform.

One thing that can be a little tricky about investing in Amazon is valuation. Given how vulnerable its biggest businesses (cloud computing and e-commerce) are to the broader economy, Amazon tends to have more volatile net income.

However, for some companies, no matter what the economy does, they prefer to ignore net income entirely and focus on adjusted metrics such as free cash flow. I think free cash flow is a more accurate indicator of Amazon’s profitability.

In the subsequent 12 months ending September 30, Amazon’s free cash flow increased 123% to $47.7 billion. However, looking at the valuation trends below, it appears that this growth is not factored into the stock price at all.

Chart from AMZN price to free cash flow
AMZN Price vs. Free Cash Flow data by YCharts.

The company’s price-to-free cash flow (P/FCF) multiple is 55.7x, about half the average over the past five years. I think investors are spooked by Amazon’s increased capital expenditures (Capex) on chips, data centers, and cloud infrastructure. This has led to great skepticism about how these AI ambitions will pay off.

To me, these concerns are unwarranted. As mentioned above, Amazon’s partnership with Anthropic is already driving revenue and profit growth for AWS, and AWS is providing the company with the financial horsepower it needs to increase its AI-related investments.

Furthermore, given the potential for AI to transform entire businesses, it’s surprising to see the company trading at such a deep discount compared to historical standards. All in all, I think Amazon is the most attractive opportunity of the Magnificent Seven, and at the current bargain prices, I’d buy the stock as soon as possible and be prepared to hold it for life. I think so.

Have you ever felt like you missed out on buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our team of expert analysts will issue a “Double Down” stock recommendation on a company we think is about to crash. If you’re already worried that you’re missing out on an investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves.

NVIDIA: If you invested $1,000 when it doubled in 2009; That’s $387,474!*

Apple: If you invested $1,000 when it doubled in 2008, you would have earned $46,399. *

Netflix: If you invested $1,000 when it doubled in 2004, you would have earned $475,542. *

We currently have “double down” alerts on three great companies, and we may not see an opportunity like this again anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor will return as of January 6, 2025

John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former Facebook director of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, 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: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.

If you could buy just one “Magnificent Seven” stock in 2025, this is what it would be like. Original article by The Motley Fool



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Adnan Mahar
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Adnan is a passionate doctor from Pakistan with a keen interest in exploring the world of politics, sports, and international affairs. As an avid reader and lifelong learner, he is deeply committed to sharing insights, perspectives, and thought-provoking ideas. His journey combines a love for knowledge with an analytical approach to current events, aiming to inspire meaningful conversations and broaden understanding across a wide range of topics.

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