It seems like everyone wants to talk about the “Magnificent Seven.” They are seven of the biggest and most important stocks out there: Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta Platforms (NASDAQ: META)And Tesla.
They’re all, in their own way, excellent stocks to own. However, over the past 20 months, two have stood out from the rest. One is Nvidia; the other might come as a surprise.
How the Magnificent Seven have performed since 2023
First, let’s take a look at how the Magnificent Seven stocks have performed since the start of 2023. Given the absolute explosion in demand for artificial intelligence (AI) systems in recent years, it’s no surprise that Nvidia is the best-performing stock in the Magnificent Seven. However, it might be a surprise to see just how far ahead Meta Platforms is is, compared to the rest.
If we leave Nvidia out of the equation, Meta dominates the rest of the Magnificent Seven. In the past 20 months, Meta shares have risen 334%. That’s about 3 times as much as Amazon, the next best May 7 shares, with a gain of 113%.
What is the cause of this divergence between Meta and the rest of the Magnificent Seven?
What does Meta have that the rest don’t?
To start with, Let’s take a look at what Meta does and how it makes money. The company operates social networks such as Facebook and Instagram. It sells advertising space on those platforms to advertisers, which generates about $150 billion per year in income.
This is in contrast to most other companies in the Magnificent Seven. Applefor example, depends on the sales of iPhones and, to a lesser extentincome from services. Microsoft is a technology conglomerate with a big cloud services company, an iconic software segment and a large gaming unit. Amazon operates the world’s largest cloud services provider, as well as a huge e-commerce segment. Tesla sells electric vehicles.
Only Alphabet operates in the same orbit as Meta with its Google Search and YouTube businesses. Yet even with Alphabet, there are significant differences. Alphabet makes a lot of money from advertising revenue, but it makes it by selling advertisements via the search engine functionality, instead of through a social media feed such as Facebook or Instagram.
The big difference, however, becomes apparent when you look at one very important metric: free cash flow.
As you can see above, both Alphabet and Meta expanded their free cash flow in impressive fashion of the last 10 years. Still, recently 18 months, Meta has Real has seceded. There are a few reasons for this.
First, Meta is growing rapidly. In its most recent quarter (the three months ending June 30), Meta reported 22% revenue growth. That’s nearly double the pace of Alphabet, which grew bee 13% over the same period.
Second, Meta is scaling back some expensive projects. Spending on the company’s Reality Labs, the segment tasked with building the company’s version of the metaverse, is expected to fall by about 20% this year.
If we ignore the revenue growth and cost savings, Meta’s company just now extreme profitable. As seen below, it ranks third among Mag 7 companies, behind Nvidia and Microsoft.
Is Meta Platforms still a bargain?
Admittedly, Meta Platforms isn’t a stock for every investment portfolio. While the stock is currently dividend-paying, its 0.4% dividend yield is barely enough to satisfy value investors or those who need to generate significant amounts of income from their investments. Nevertheless, Meta is an excellent stock, particularly for investors who can hold the stock for years and benefit from its growing revenue and free cash flow. For those reasons, Meta is an excellent stock that most investors should strongly consider.
Should You Invest $1,000 in Meta Platforms Now?
Before buying shares on Meta Platforms, you should consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $650,810!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 3, 2024
Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, 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: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Besides Nvidia, there’s 1 more “Magnificent Seven” stock that stands out above the rest. The reason why may surprise you. was originally published by The Motley Fool
