Technology stocks have generally surged this year, contributing to a 27% rise in the S&P 500 index. Leading the pack were several brands known as the Magnificent Seven, named after the 1960 Western movie. These megacap stocks have a strong track record of long-term earnings growth and continue to innovate, giving them the potential to generate earnings growth well into the future.
The names of these companies are easy to recognize.
meta platform (meta -1.65%) –Owners of social media apps, including Facebook. alphabet (GOOG -1.16%) (Google -1.11%) — Owner of Google and YouTube. Amazon — e-commerce and cloud computing giant. Apple — Manufacturer of the iPhone. Microsoft — Software and cloud computing giant. Nvidia — A leader in the artificial intelligence (AI) chip market. Tesla — the leader in electric vehicles.
The company’s profits this year range from 19% for Microsoft to 171% for Nvidia. While these results were great for those who already owned the company’s stock, they did something less positive: boost the company’s valuation.
Despite this, both Magnificent Seven stocks remain in undervalued territory, with both companies focused on the high-growth field of artificial intelligence (AI). I’m talking about Meta Platforms and Alphabet, which trade at 27x and 24x forward price-earnings, respectively. So which one is better when it comes to buying AI in 2025?
Image source: Getty Images.
For meta
Meta operates some of the world’s leading social media apps, including Facebook, Messenger, WhatsApp, and Instagram. Over 3.2 billion people use at least one platform every day, allowing Meta to generate billions of dollars in revenue from the sale of digital advertising space. Companies that want us to buy their products and services know that they’re more likely to get our attention when we use Meta’s apps. In its most recent quarter, the company’s ad revenue rose 19% year-over-year to more than $39 billion.
In addition to this, Meta is committed to AI, developing and open-sourcing the popular large-scale language model (LLM) Llama, making it freely accessible to developers. This focus on open source is positive as it is helping Meta increase its presence in the world of AI and could eventually become a leader in the field.
AI could be a major growth driver for the meta. The company aims to launch AI assistants and tools that can assist users in a variety of ways, from leisure activities to business needs. This could lead to users spending more time in Meta’s apps. However, management said investors should be patient as ambitious investments in AI will not bear fruit overnight.
For alphabets
Alphabet is both a user and a seller of AI. The company developed Gemini LLM and uses this technology to improve Google search. Google is already the most used search engine in the world, holding around 90% market share, and could maintain its top spot with further improvements. For example, Google Search’s AI Overview feature takes information from a variety of sources and aggregates data about the topic you’re searching for. Alphabet says it’s seeing “strong engagement” thanks to this and other AI-driven features, leading to increased usage of Google Search.
Alphabet also makes most of its revenue from selling digital ad space. Google’s ad revenue rose 10% to more than $65 billion in the third quarter.
Now let’s talk about how Alphabet is selling AI through its growing Google Cloud business. In the second quarter, Google Cloud achieved several milestones, achieving more than $10 billion in revenue and more than $1 billion in operating profit. And both metrics increased in the third quarter. Through Google Cloud, customers can buy everything from compute time on a variety of AI chips to access to a fully managed AI development platform called Vertex AI. The increase in cloud revenue shows that Alphabet is already benefiting from its AI investments.
And AI can be purchased at a better price…
Before revealing my conclusion, there is one thing to note about Alphabet. The company is defending itself against antitrust violations, and the Justice Department is asking the court to order the company to be broken up. This represents a risk, but it’s clear that Alphabet will contest decisions it sees as having negative consequences – and for now, antitrust risks are not enough to keep me from buying the stock. I won’t stop investing.
So what’s a better deal for AI to buy today? I like both of these Magnificent Seven players, but I’m going with Alphabet. The stock looks reasonably priced given the momentum we’re seeing in the Google Cloud business. We are in the early stages of building AI, which could help Alphabet’s cloud business continue to grow strongly into the future.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is 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. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Adria Cimino has held positions at 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: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
