Among Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla, there are incredible deals hiding in plain sight, as well as big-ticket items that could be more than worth the money. also exists.
The second year of Wall Street’s bull market rally did not disappoint. When they crossed the finish line, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite were up 13%, 23%, and 29%, respectively, in 2024.
A variety of factors have contributed to this outperformance, including the rise of artificial intelligence (AI) and Donald Trump’s victory in November, which pushed Wall Street’s three largest stock indexes to multiple record highs last year. The fundamental impetus for the rise was the outperformance of stock prices. “Magnificent Seven”.
Image source: Getty Images.
The Magnificent Seven is made up of seven of Wall Street’s most influential companies.
Nvidia (NVDA -0.02%)
apple (AAPL 0.20%)
microsoft (MSFT 0.52%)
Amazon (AMZN 0.01%)
alphabet (Google -0.79%) (GOOG -0.67%)
meta platform (meta -1.16%)
tesla (TSLA 0.15%)
There are two characteristics that define these seven businesses. The first is, as I already mentioned, the historic outperformance. These seven companies then cycled around the benchmark S&P 500 over the next decade. The S&P 500 has risen nearly 189% over the past decade, excluding dividends, while Amazon, Tesla, and Nvidia have soared 1,350%, 2,710%, and 28,610%, respectively.
NVDA data by YCharts.
Another consistent characteristic of the Magnificent Seven is their sustained competitive advantage within their respective industries.
Nvidia powers the majority of graphics processing units (GPUs) deployed in enterprise AI-powered data centers. Apple has the clear market share lead in domestic smartphone sales with the iPhone, and it also has the most aggressive share buyback program of any publicly traded company. Microsoft’s Azure is the world’s second-largest cloud infrastructure services platform, but Windows remains the world’s leading operating system for personal computers. Amazon has the world’s most dominant online market, and its cloud infrastructure services platform, Amazon Web Services (AWS), ranks number one in global market share. Alphabet’s Google commands nearly 90% of global internet searches, while Google Cloud is the world’s third-largest cloud infrastructure service provider behind AWS and Azure. Meta Platforms is the parent company of Facebook, the world’s top social media site, and attracted 3.29 billion daily active users to its family of apps in the quarter ending September. Tesla is North America’s leading electric vehicle (EV) manufacturer and one of the few EV-focused companies to achieve recurring profitability.
But while these seven companies share similar characteristics, their outlook for 2025 is very different. With the bull market expected to extend into its third year, one Magnificent Seven stock stands out as an undervalued stock, while another is worth avoiding in 2025.
Magnificent Seven Stocks, Buy Hand Over Fist in 2025: Alphabet
Among a group of six or more companies that performed well, Alphabet stands out as the best stock of the new year.
We’ll talk more about Alphabet’s lucrative growth opportunities in a moment, but the first thing to note is the company’s absolute dominance in Internet search. Over the next decade, Google controlled 89% to 93% of the world’s Internet search share. In other words, Google is now the go-to for companies to target messages to users, which is usually good news for Alphabet’s ad pricing power.
Alphabet is also the parent company of streaming platform YouTube, the second most visited social site after Meta’s Facebook. With the proliferation of short videos (short videos under 60 seconds) and approximately 2.5 billion monthly active users, YouTube’s subscription and ad pricing power should steadily increase.
Given the above, history is definitely in one corner of the alphabet. Advertising spending tends to be highly cyclical, with periods of economic growth lasting significantly longer than recessions. This suggests that advertising-driven companies like Alphabet spend a significant portion of their time basking in the sun, rather than lingering under the proverbial cloud.
However, Alphabet’s long-term growth prospects depend primarily on its cloud services platform. Google Cloud is expected to achieve sustained double-digit revenue growth. Enterprises are still in the relatively early stages of increasing spending on cloud services. Additionally, Alphabet’s inclusion of generative AI solutions in Google Cloud will be beneficial to customers and should dramatically increase operating cash flow from this division in the second half of the decade.
The true goldmine on Alphabet’s balance sheet is also a competitive advantage. We ended the third quarter with $93.2 billion in cash, cash equivalents and securities, resulting in a strong capital return program. Other than Apple, no S&P 500 company has repurchased more stock than Alphabet over the past decade ($286.7 billion as of September 30, 2024).
Finally, Alphabet’s valuation makes sense for opportunistic long-term investors. The company’s stock is currently valued at 15.7 times projected 2025 cash flows, which represents a 13% discount to the company’s average multiple of cash flows over the next five years.
Image source: Getty Images.
Magnificent Seven Stocks to Avoid in the New Year: Nvidia
However, not all components of the Magnificent Seven are necessarily worth purchasing. As we push towards 2025, one member to avoid is none other than Nvidia.
There are certainly specific catalysts that explain why Nvidia has amassed a market value of well over $3 trillion over the past two years. At the top of the list is the complete dominance of AI-GPU. The company’s H100 GPU (commonly referred to as the “hopper”) and next-generation Blackwell chips are the “brains” of high-computing data centers.
Nvidia is definitely benefiting from the AI-GPU shortage as well. Demand for the company’s AI solutions has cleverly overwhelmed supply, allowing Nvidia to charge premium prices for its products. As a result, the company’s gross profit increased by double digit points.
The concern is that all of NVIDIA’s catalysts are fully baked into the stock price.
For example, competition is increasing from all angles. In addition to direct GPU developers (such as Advanced Micro Devices) ramping up production, Nvidia could lose valuable data center real estate due to the actions of its top customers.
Microsoft, Meta, Amazon, and Alphabet are Nvidia’s core customers by revenue, and all develop GPUs for use in their respective data centers. While these chips won’t match Hopper or Blackwell in terms of computing speed, they will be more available and much cheaper than Nvidia’s hardware.
President-elect Donald Trump’s victory in November also added a big question mark to NVIDIA’s future. President Trump previously announced plans to impose 35% tariffs on Chinese imports on his first day in office, a move that could strain trade relations with the world’s second-largest economy. This is in addition to President Joe Biden’s administration restricting shipments of high-performance AI chips and related equipment to China starting in 2022.
History isn’t on Nvidia’s side either. Over the past 30 years, no next big innovation or technology has been able to avoid the bubble bursting in its infancy. These boom-bust cycles are caused by investors overestimating the early adoption and usefulness of new technologies. Artificial intelligence appears to be the next character in a long bubble, given that most companies lack a clear plan to generate positive returns from their AI investments.
Finally, NVIDIA’s valuation is a concern. Although the company’s forward price/earnings ratio (P/E) is not terribly high, the price/earnings ratio (P/S) is 32 times (it was above 40 times in June and July), which is in line with the stock price multiple. We are doing so. When bubbles burst in the past, other market leaders were toppled.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. 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 head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Sean Williams has held positions at Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, 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.
