Investing in "Magnificent Seven" stocks has proven very profitable. Many of these stocks -- which include notable growth companies like Alphabet, Meta Platforms, and Nvidia -- have seen their share prices put up triple-digit gains over the past several years.
While there's still upside for these market giants, investors can see the biggest gains by investing in the next Magnificent Seven stock.
If you're looking for the next $1 trillion opportunity, look no further than Shopify (SHOP 0.94%).
This could be the next $1 trillion stock
Every Magnificent Seven company has at one point seen its market capitalization clear $1 trillion. It's worth asking how they achieved such a lofty valuation.
There are three main characteristics that nearly all of the Magnificent Seven share.
First, they're all exposed to massive growth markets. And by massive, I mean truly massive. You can't become a trillion-dollar business by focusing on a $50 billion or even a $500 billion market. To grow this large, a business must target multitrillion-dollar opportunities.
On this first test, Shopify passes with flying colors. It operates an e-commerce platform that allows anyone to sell online in just minutes. Millions of small businesses use its platform every day to conduct business online. Larger enterprises use the platform as well, including Glossier, Molson Coors, Nestle, and Mattel. How big is the e-commerce market? This year, billions of online shoppers are expected to spend $3.2 trillion globally.
Is Shopify targeting an opportunity large enough to become part of the Magnificent Seven? Absolutely.
The second characteristic most of the Magnificent Seven share is that they're highly profitable. Many of these companies, for example, focus on software. While expensive to initially build and roll out, software businesses can become very profitable as they scale. That's because adding another user to the existing system costs a software business relatively little. Companies that produce physical products, by comparison, must invest in additional facilties and labor to expand output.
When looking at gross profit margins, Shopify's 50% gross margin is superior to that of the companies that focus on physical products, like Apple and Tesla, but below other software businesses like Meta and Alphabet.
While Shopify's gross margin doesn't lead the Magnificent Seven, it's certainly high enough to fall within the group.
Data by YCharts.
The final characteristic that Shopify shares with the Magnificent Seven is its ability maintain high growth rates for extended periods of time. While there have been steep fluctuations along the way, most Magnificent Seven companies have been able to deliver double-digit revenue growth rates for years and years.
As you can see below, Shopify has consistently reported growth near the top of the pack (Nvidia, not included in the chart, has reported by far the highest growth in recent quarters). That's largely due to its smaller size, but that's exactly the point.
Data by YCharts. Excludes Nvidia.
Shopify stock has room to grow
Like many of the Magnificent Seven, Shopify is targeting a multitrillion-dollar opportunity. It also sells a highly profitable, highly scalable product. And it has a proven history of maintaining high growth rates for years at a time.
But here's the key difference: Shopify is much smaller than most Magnificent Seven stocks. With a market cap of about $100 billion, Shopify has a huge runway of growth ahead of it. The e-commerce market will only continue to grow in the next decade, and Shopify is investing in its business to take more market share. Research and development expenses have been climbing in recent years with 2023 hitting nearly 25% of revenue.
Investing in the Magnificent Seven is still a promising strategy. But if you want the biggest gains, you have find businesses of that caliber before they reach critical mass. Right now, Shopify looks like a Magnificent Seven stock in the making, and investing now provides the most potential for long-term growth.
