The S&P 500 is widely considered the best gauge for the U.S. stock market as a whole. But seven companies — the “Magnificent Seven” — account for a third of the market cap. Those seven companies have also been responsible for 60% of the S&P 500’s gains since January 2023.
Investors looking for the best Magnificent Seven stock to buy now should consider Wall Street’s median price targets, which are listed in alphabetical order below. Next to each target is the implied upside as of August 18.
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Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG): $205 per share (up 26%)
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Amazon: $220 per share (up 24%)
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Apple: $250 per share (11% increase)
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Meta platforms: $575 per share (up 9%)
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Microsoft: $497.50 per share (up 19%)
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Nvidia: $140 per share (12% increase)
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Tesla: $225 per share (up 4%)
Analysts see an increase in every Magnificent Seven stock on average, but none more than Alphabet. In other words, Wall Street sees Alphabet as the best Magnificent Seven stock to buy right now. Here’s what investors need to know.
Alphabet is boosting its growth engines with artificial intelligence
Alphabet has two major growth engines in its advertising and cloud computing businesses. Both markets are growing steadily. Research firm eMarketer estimates that digital ad spending will grow 8% annually through 2027, and International Data Corp. estimates that public cloud revenue will grow 19% annually through 2028.
Alphabet has a strong presence in both markets. It’s the world’s largest digital advertiser and the third-largest public cloud by revenue. That essentially puts the company on a slide toward double-digit revenue growth in the near future. But Alphabet is also leveraging its expertise in artificial intelligence (AI) to accelerate growth in both businesses.
In advertising, Alphabet has six products with more than 2 billion monthly users. These products support the ability to collect data and deliver relevant advertising content to internet users, making Alphabet an indispensable partner for many brands, especially when it comes to Google Search. The company has integrated AI into all six products.
CEO Sundar Pichai recently said that generative AI overviews are “an increase in [Google Search] usage and increased user satisfaction with the results,” particularly among users aged 18 to 24. That’s encouraging given concerns that Google could lose market share to OpenAI. So far, nothing of the sort has happened, and AI-driven innovation could cement Alphabet’s leadership in web search. Alphabet has also introduced AI-powered tools that help media buyers create ad content and optimize revenue.
In cloud computing, Google Cloud is much smaller than Amazon Web Services and Microsoft Azure, but it has gained a percentage point of market share over the past year. That was partly due to demand for AI products, particularly the new Gemini family of models. The gains in market share could continue as companies invest more aggressively in AI.
Pichai recently told analysts: “Our AI infrastructure and generative AI solutions for [Google Cloud] Customers have already generated billions in revenue and are used by more than 2 million developers.” Demand for AI products helped accelerate Google Cloud’s revenue growth in the quarter ended June, and management spoke optimistically about the long-term opportunity during the earnings call. Pichai believes AI will be a “big driver” down the road.
Antitrust regulators recently dealt Alphabet a blow
A U.S. district judge recently ruled that Alphabet violated antitrust law by paying browser developers and smartphone makers to make Google Search the default search option. For example, the company paid Apple about $20 billion in 2022 for the default placement on its Safari browser and iOS devices. Alphabet is also paying Samsung an undisclosed amount for similar benefits.
The outcome of the lawsuit remains unclear. But JP Morgan Analysts estimate that disputed contracts account for about 25% of Google Search revenue, or 15% of total revenue. Alphabet plans to appeal the recent ruling, but the appeals process could take years. Ultimately, it seems likely that the company will no longer have to pay to make Google Search the default option on browsers and devices. That could theoretically have a significant impact on its financial results.
In 2020, Alphabet estimated that losing the default position on Safari browsers and iOS devices could cost it more than $32 billion in annual revenue. That said, some analysts think the company could benefit. “If users are presented with a choice screen and most select Google, [Alphabet] could save more money on payments to Apple, Samsung and others than it loses on search advertising,” it said. The Wall Street Journal.
Alphabet shares are trading at a fair price compared to Wall Street’s growth expectations
In summary, Alphabet has a strong presence in digital advertising and cloud computing, and the company is creating new monetization opportunities by adding artificial intelligence capabilities to both product ecosystems. There are undoubtedly risks related to regulatory scrutiny, but Google Search has enormous brand authority, which could help it overcome any hurdles arising from the ongoing lawsuit.
With that in mind, Wall Street expects Alphabet to grow earnings per share by 17% per year over the next three years. That consensus estimate makes the company’s current valuation of 23.4 times earnings seem reasonable. That figure translates to a PEG ratio of 1.3, which is slightly below the company’s three-year average of 1.4. Investors should consider buying a small position in this Magnificent Seven stock today.
Should You Invest $1,000 in Alphabet Now?
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Randi Zuckerberg, former chief marketer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Amazon, Nvidia and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The Best ‘Magnificent Seven’ Stocks to Buy Now, According to Wall Street was originally published by The Motley Fool
