Nvidia (NVDA +0.29%) became a Wall Street darling last year when it cornered the market on artificial intelligence (AI) chips and earned its spot in the "Magnificent Seven," a phrase used to describe the seven most prominent tech companies. As a result, the company's stock is up 242% since last March, almost entirely based on excitement over its AI prospects.
With the industry projected to expand at a compound annual growth rate (CAGR) of 37% until at least 2030, it's no wonder investors have flocked to the market. However, plenty of companies are moving into AI and could have more room to run than Nvidia or might be trading at a better value than the chipmaker.
Consequently, it's a good idea to look for alternative ways to invest in the budding sector. Other companies in the Magnificent Seven are an excellent place to start, with many known for their reliability over the long term and heavy investment in AI.
So forget Nvidia. You'll regret not buying these Magnificent Seven stocks instead.
1. Alphabet
Alphabet (GOOG +1.10%) (GOOGL +1.31%) CEO Sundar Pichai describes the company as seven years into its "journey as an AI-first company." This year, a poor debut for its new large language model Gemini created doubt over its potential in the industry. However, the company remains a behemoth in tech, with significant cash reserves that will likely see the company retain its dominance and eventually catch up to its AI rivals.
NASDAQ: GOOGL
Key Data Points
In-house brands like Android, YouTube, Chrome, and Google have granted Alphabet a powerful position in tech. These brands attract billions of users and have helped the company's annual revenue rise 90% in the last five years, with operating income up 135%. Meanwhile, Alphabet's many products create almost endless opportunities to boost its business with AI.
Improving Gemini could see Alphabet offer more effective advertising, develop a search experience closer to OpenAI's ChatGPT, better analyze viewing trends on YouTube, and expand its AI cloud services on Google Cloud.
Data by YCharts.
The chart above shows Alphabet's stock is trading at a significantly better value than Nvidia's, with a far lower forward price-to-earnings ratio (P/E) and price-to-free-cash-flow ratio. These are helpful valuation metrics as they consider a company's financial health, and the lower the figure, the better the value.
Additionally, Alphabet's free cash flow of nearly $70 billion, compared to Nvidia's $27 billion, suggests it's potentially better equipped to keep investing in its business and overcome current headwinds.
The Google company may have hit a few roadblocks this year, but that's precisely why now is the perfect time to make long-term investments in its stock. The Magnificent Seven company has an exciting outlook for the coming years and trades at a bargain, compared to Nvidia.
2. Amazon
Amazon (AMZN +0.61%) delivered impressive growth in 2023 after facing declines from an economic downturn in 2022. In fiscal 2023, Amazon's revenue rose 12% year over year, with operating income more than tripling to $37 billion.
A solid recovery in its e-commerce earnings over the last year has seen the company's free cash flow soar 904% to surpass $32 billion. This indicates it has the financial resources to continue expanding and manage possible hurdles.
Amazon has come a long way since starting as an online book retailer out of Seattle almost 30 years ago. The tech giant has expanded into multiple industries, from becoming a titan of e-commerce to leading the cloud market, developing space satellites, and venturing into grocery, gaming, consumer tech, and more.
NASDAQ: AMZN
Key Data Points
But all eyes have been on Amazon's AI efforts over the last year. As the operator of the world's biggest cloud service, Amazon Web Services (AWS), the company has the potential to leverage its massive cloud data centers and steer the generative AI market.
In 2023, AWS responded to increased demand for AI services by introducing a variety of new tools. Amazon is even using AI to boost its retail site and announced an AI shopping assistant dubbed Rufus ahead of its latest earnings release.
Amazon is moving to become a major threat in AI over the long term, but also has a lucrative retail business that makes its stock too good to pass up.
Data by YCharts.
Moreover, the table above indicates Nvidia's earnings could reach $36 per share over the next two fiscal years, while Amazon's may achieve $7 per share. On the surface, Nvidia looks like the clear winner. However, multiplying these figures by the companies' forward P/E ratios (Nvidia's 36 and Amazon's 43) yields stock prices of $1,309 for Nvidia and $301 for Amazon.
Considering their current positions, these projections would see Nvidia's stock rise 45% by fiscal 2026 and Amazon's increase by 67%. Alongside a lucrative e-commerce business and expanding position in AI, Amazon is a Magnificent Seven stock worth considering over Nvidia right now.
