Magnificent Seven stocks will have a huge impact on the overall market in 2024, with investors rushing to buy stocks that have skyrocketed due to these artificial intelligence influences. Their influence has grown: These seven stocks now account for about a third of the overall value of the broader index S&P 500. This means these seven stocks are playing a big role in sustaining the ongoing bull market.
But as U.S. Treasury yields rise heading into 2025, some investors are starting to debate whether the bull market is sustainable. They wonder if a correction due to the selling of the Magnificent Seven is just a matter of time.
It’s always difficult to predict what will happen to the market in the short term, but many analysts remain bullish on the Magnificent Seven name and believe this market enthusiasm is still justified. I’m thinking. Wall Street analysts in particular seem optimistic about tech giant Alphabet. (Google 1.69%) (GOOG 1.80%)Magnificent Seven stock is at its lowest price right now. The company’s stock price could rise 26% to $240 over the next year or so. Here’s why:
Exclusion from Justice Department lawsuit
Alphabet stock underperformed its peers in 2024, due in part to concerns about antitrust litigation from the U.S. Department of Justice (DOJ) and competition from emerging search engines such as OpenAI’s ChatGPT. It currently trades at the lowest forward earnings multiple of the Magnificent Seven.
Data by YCharts.
The Justice Department sued Alphabet Inc.’s Google in 2023, alleging that the company used its size and dominance to monopolize the digital advertising space by crowding out competitors, effectively forcing publishers to use its advertising tools. It alleged that the company used coercion and exercised undue control over pricing. In August 2024, a judge ruled in favor of the Justice Department, saying that Google was indeed a monopoly and that its power had led to soaring advertising prices. What really worried investors was a request from the Department of Justice to force Google to sell its Chrome browser, which would have huge implications for the company and the digital advertising space.
Most experts and analysts following the incident see this as an unlikely outcome. Baird analyst Colin Sebastian wrote in a research note in late November that he thought the Justice Department had gone too far. “In our view, the Justice Department’s remedy is a wish list of restrictions on Google that go far beyond the court’s ruling.” The analyst is not alone. Eric Hovenkamp, a professor of antitrust law at Cornell University, recently told TechTarget that most judges typically don’t want to break up large companies that consumers use every day, but they would “rather use surgical procedures” to resolve the issue. approach.” Google also plans to fight the Justice Department’s requests and lawsuits, and has significant resources to do so.
AI theory intact
More bullish analysts believe investors will soon factor the impact of the lawsuit into stock prices and focus on core businesses with strong prospects for AI that many investors may have overlooked. . The most bullish analyst is Philip Securities’ Jonathan Wu, who set a price target of $240 in early November after Google announced its third-quarter results. Wu is bullish on Alphabet’s efforts to improve cost efficiency and the high profitability of Google’s cloud business. Wu also believes that Google has the ability to “deliver an almost immediate ROI from its AI investments.”
While Wu’s report may feel a bit outdated, other analysts have also raised their price targets. Wolf Research recently set a $230 price target for Alphabet as part of its bullish outlook for Internet stocks. Wedbush analyst Scott Devitt recently raised his price target to $220, citing the positive outlook for the cloud business, the potential for earnings growth, and the company’s ability to grow its AI products.
I’m not a legal expert, but I think it’s unlikely that a judge would rule against Google to sell Chrome or make any significant changes to the company. There are several other, less drastic changes that courts could impose to weaken Google’s monopoly. Google has been on the cutting edge of technology since the late 1990s, and I expect the company to remain on the cutting edge of AI for many years to come.
I agree with investors who think Magnificent Seven stock is vulnerable to a pullback right now, but if you’re looking to buy the stock, the fundamental strength of its core business makes Google attractive. I would also like to say that it looks like It’s probably a short-term decline driven primarily by litigation.
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 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. Bram Berkowitz has no position in any stocks mentioned. 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.
