Nicknamed the “Magnificent Seven” for their significant wealth creation for shareholders over the past decade and the market’s generally upbeat view for their future, Nvidia, Apple, Microsoft, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms, Amazon, and Tesla are all the rage on Wall Street these days. But with such strong gains from these companies in the rearview mirror, some investors may wonder if some of these stocks have become overvalued. So, it’s worth taking some time to consider which ones might have the most potential over the next decade.
While there will likely be more than one major winner in the coming years from this powerhouse group, one stands out as an attractive investment even today: Alphabet. Not only is the Google parent company growing its top line at a robust rate, but its stock trades at a reasonable valuation relative to its underlying financials. Further, its business benefits from a massive war chest of cash.
Let’s take a closer look at why Alphabet might be the top Magnificent Seven stock to buy today.
Accelerating growth
The first reason it’s a good time to invest in Alphabet is its accelerating top-line growth. The company’s fourth-quarter revenue rose 13% year over year, up from 11% growth last quarter.
Importantly, Alphabet’s revenue drivers were broad-based in Q4. Consider its year-over-year top-line momentum in the following key areas, representing 99% of the tech company’s total revenue.
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Advertising revenue rose 11%.
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Subscriptions, platforms, and devices revenue jumped 23%.
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Cloud computing revenue soared 26%.
While this strong top-line momentum doesn’t guarantee more of the same going forward, it’s comforting to know the company’s growth is accelerating and that it’s coming from more than one area of Alphabet’s business. This likely bodes well for the future.
Tons of cash
Then, of course, there’s Alphabet’s cash hoard. The company ended the year with $111 billion in cash and marketable securities, even after repurchasing $62 billion of its stock during the period.
Further, Alphabet’s debt is relatively trivial. At the end of Q4, long-term debt was just $13.2 billion, down from $14.7 billion at the end of 2022.
Combining its strong balance sheet with its annual profits of more than $70 billion, more substantial buybacks are likely in the future.
A reasonable valuation
With such good top-line momentum and a conservative balance sheet, Alphabet deserves to trade at a premium to the market — especially when also factoring in the immense intrinsic value of its dominant core search business and the inherent scale benefits of its cloud business, which is one of the biggest in the world.
Yet somehow, Alphabet shares trade at just 24 times earnings, at the time of this writing. This is about in line with the S&P 500‘s price-to-earnings ratio of 23. Even more, it’s much lower than peers Microsoft, Apple, and Meta Platforms, which have price-to-earnings ratios of about 37, 28, and 32, respectively. Then, of course, there’s Amazon, Nvidia, and Tesla’s astronomical price-to-earnings ratios of 58, 96, and 47, respectively.
Sure, some of these companies are growing faster than Alphabet and may deserve higher valuation multiples. But Alphabet stock offers investors a well-rounded investment trading at a reasonable valuation. Overall, it arguably represents the best risk-reward profile of all the Magnificent Seven stocks at the moment.
Should you invest $1,000 in Alphabet right now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to 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. Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies 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: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
This “Magnificent Seven” Stock Looks Like a Buy was originally published by The Motley Fool
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