Over the past few months, we’ve seen intense focus on the so-called “Magnificent 7” stocks. Indeed, this select group of high-flyers has been in focus for good reason. Their meteoric rises seem to know no bounds. However, not all Magnificent 7 stocks are created equal. While some may slump back to valuation multiples near their historical norms, others boast strong fundamentals that suggest further upside.
I believe Tesla (NASDAQ:TSLA) fits into the former category. On the other hand, Nvidia (NASDAQ:NVDA) appears to have transformed into a momentum play, pure and simple. Its valuation far outpaces what financials alone would support, led instead by FOMO-fueled speculation. And while such a frenzy can continue for some time, cyclical industries like semiconductors have a history of overheating.
When gravity inevitably kicks in, the fall for these high-fliers can prove to be steep, with 50% downside or more. Can NVDA stock break through $1,200 or some of the crazier price targets in the coming weeks? Maybe. But I’m here to point out investments, not swing trades.
Rather than chase these richly-valued names, I think investors should focus on high-quality Magnificent 7 stocks with room to run in the long-term. Here are three to look into.
Microsoft (MSFT)
As I have noted in many of my recent articles, I believe Microsoft (NASDAQ:MSFT) should remain a core holding for a well-balanced portfolio. You could argue that much of Microsoft’s recent spike is thanks to AI hype, and it could come crashing down once that cools off. However, I don’t think that is a long-term concern here. Microsoft is a jack of all trades, and the AI cooloff won’t make hurt this company’s core performance. Microsoft has its hands in seemingly every tech niche – hardware and software included. You can think of anything in the tech sector, and Microsoft likely has at least some offering to compete with its peers.
Of course, that doesn’t mean Microsoft has had success everywhere. But right now, the company it is still firing on all cylinders. Bing is a good example of Microsoft’s fierce competitiveness, though even with an AI integration, it has failed to steal market share away from Google. On the financials front, there’s not much to say except that you’ll continue to see 15-20% revenue and earnings growth going forward. This will mostly be driven by Microsoft making good use of the boom in the cloud industry.
Remember, Microsoft’s Azure only trails AWS, and Microsoft’s significant early investments in OpenAI have allowed Azure to become the world’s most-used AI platform. That is something that will pay significant dividends down the line. I haven’t even touched on the productivity software that the white-collar sector can’t survive without.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is not far behind Microsoft on my list of most magnificent ‘Mag7’ stocks. Although we are not looking at the same level of technological diversity in its business, Amazon has enough firepower to provide stable and consistent benchmark-beating returns over the long-run. Amazon’s AWS is the company’s spearhead, driving expectations of massive earnings per share growth over the coming years.
In fact, the company’s earnings pear share are expected to grow three-fold from $4 to $12 from 2024 to 2033. This is why I think investors shouldn’t fret about AMZN stock trading at 40-times earnings. Its 2.8-times sales multiple also isn’t that much of a premium, since revenue is expected to continue growing at a double-digit clip going forward.
I think Amazon can beat consensus estimates if its data center segment outperform, and a stronger-than-expected e-commerce recovery materializes. AWS and Amazon’s e-commerce business continue to have tremendous growth potential in the years ahead. With Amazon expanding into new industries like healthcare and self-driving vehicles, many possible catalysts could turbocharge growth even further.
Meta Platforms (META)
I have been pounding the table on Meta Platforms (NASDAQ:META) for a very long time. I remember being very bullish on the stock in many of my articles back when it traded near the bargain price of just $90 per share. I am happy to see it more than quintuple since. However, my conviction hasn’t cooled since.
I think Meta Platforms is very under-estimated as a tech company. Sure, teenagers may not use Facebook as much, but that isn’t the case everywhere in the world. Facebook is still the go-to platform in many developing countries, and Meta’s “Family of Apps” continues to grow. There are no signs of an immediate collapse in the company’s user base, revenue, or profitability. In fact, it is quite the opposite.
Moreover, Meta’s metaverse investments may finally be paying off soon. Investors are now anticipating the ways in which Apple (NASDAQ:AAPL) will join the AR/VR fray. As I said a year and a half ago, Meta may not be making a foolish move by investing in the metaverse. Instead, it could just be ahead of its time. That has been turning out to be the case so far.
What’s even more exciting is that I noted in an article back in October 2023 that I saw Meta Platforms as a very attractive stock if it introduced dividends – and it did! I noted back then that I saw it going to $500 by the end of 2025, but I believe $650 or more is a more realistic target now.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.