The “Magnificent Seven” are a group of the world’s most popular and promising growth stocks. Investing in these big tech stocks has been a great way to make significant returns over the past few years. But things can change quickly in the tech world, and just because some stocks have done well over the past few years doesn’t mean they’re solid stocks to hold onto for the long term.
Three Magnificent Seven stocks that I don’t think will look this great in five years are Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta platforms (NASDAQ: META)And Tesla (NASDAQ: TSLA)Here are the reasons why these specific stocks may struggle in the coming years.
1. Alphabet
Alphabet was a stock I was bullish on. The company looked dominant with a top video streaming website (YouTube) and a top search engine (Google).
These days I’m not so optimistic. As YouTube’s ads get longer and longer, there’s a big risk that users will be encouraged to switch to a streaming service like Netflix Instead, there is a wide range of top content to choose from, which justifies the price, without annoying ads (depending on the subscription level).
But the biggest risk for Alphabet is undoubtedly its search business. Regulators have already ruled that Google is a monopoly, and the implications of that are still unknown but likely to hurt growth prospects. And with more AI-powered chatbots answering questions and reducing the need to go to Google, that’s another headwind for revenue growth.
The stock may look cheap, trading at just 23 times trailing earnings, and revenue is still strong, growing 14% year-over-year in the last reported quarter, but investors shouldn’t ignore the long-term risks facing Alphabet. There could be daunting new challenges and competition that could hamper growth and reduce earnings power, which is why I’d avoid the stock for now.
2. Meta-platforms
Another company that’s doing well now but could be in trouble in the future is Meta Platforms. Things are looking good for the company, with revenue up 22% year-over-year in the June quarter, to $39.1 billion. Meta’s management says its AI assistant “will be the most widely used AI assistant in the world by the end of the year.”
The present looks solid, but the future may not be so promising. Like Alphabet, Meta is facing challenges from regulators. Concerns about the company’s social media platforms and their alleged negative effects on users’ mental health could lead to changes in Meta’s operations that could hurt its bottom line. Last year, 42 state attorneys general sued Meta, alleging that Facebook and Instagram were too addictive for young children. Elsewhere, tighter restrictions are being sought on the data Meta collects and how it collects it. The social media platforms it operates could become less valuable to advertisers if the restrictions are added.
Then there’s Meta’s continued massive spending spree in the Reality Labs segment and a metaverse that shows little sign of ever delivering the returns needed to justify it.
At 27 times earnings, Meta’s stock doesn’t seem overpriced, but that could change if growth slows while spending remains high. This is a tech stock I’d avoid — it’s got a long way to go to fall in the coming years.
3.Tesla
The most expensive stock on this list (based on valuation) is Tesla, with investors paying more than 60 times earnings to buy shares. But that’s not unusual for the electric vehicle (EV) maker. Investors are used to paying high multiples for the stock. This year hasn’t been great, though, with the stock down about 7%.
Investors are concerned about the company’s thinner margins due to increased competition and weak consumer demand. Neither of these issues is likely to improve anytime soon. A potential recession could hurt demand in the short term, and while that could be temporary, growing competition from Chinese EV makers could force Tesla to cut prices further, which would only exacerbate concerns about its profits.
Tesla is hoping a successful launch of its robotaxi program can be a catalyst, but that could prove to be a disappointing development for the company given potential regulatory issues and other hurdles.
As challenging as conditions are for Tesla right now, they could get even worse for the stock over the next five years.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Netflix and Tesla. The Motley Fool has a disclosure policy.
Prediction: These 3 Stocks Won’t Be Great Buys in 5 Years was originally published by The Motley Fool
