The "Magnificent Seven" is a group of technology stocks that includes Nvidia, Microsoft, Apple, Amazon (AMZN -1.59%), Alphabet (GOOGL -1.19%) (GOOG -0.43%), Meta Platforms, and Tesla. Grouped together because they play an outsized role in the tech sector and in shaping the broader market, this basket of stocks has absolutely crushed broader-market indexes over the last five years. In fact, only Amazon has underperformed the S&P 500 over the stretch.
Given their individual competitive advantages and industry-shaping capabilities, there's a good chance that this group of stocks will continue to outperform the market -- but it's also virtually certain that some of these stocks will significantly outperform their peers. With that in mind, two Motley Fool contributors think that the two companies below will be the best-performing Magnificent Seven stocks over the next five years.
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High opportunity, low price
Jennifer Saibil (Amazon): Amazon has a few advantages over some of the other "Magnificent Seven" stocks, which makes it more likely that it will outdo them over the next few years and end up even more valuable. Let's go through them.
- Amazon's main business, as most U.S. shoppers know well, is e-commerce. It has an unbeatable lead in the fast-growing industry. According to eMarketer, e-commerce accounted for about 20.3% of total retail sales in 2024, and that's expected to reach 23% by 2027; each of those percentage points could be worth trillions of dollars. Based on its share of about 40% of the market, you can easily calculate how much of those growth dollars are likely to end up as Amazon sales.
- It has the lead in the cloud. Amazon is the largest cloud service company in the world because of its Amazon Web Services (AWS) segment, and the opportunity in generative artificial intelligence (AI) is in the cloud.
- It has a large opportunity in AI. Just as a huge percentage of the added opportunity in e-commerce will land in Amazon's lap, so will the expanded AI opportunity. According to Statista, the AI market is expected to increase at a compound annual growth rate of almost 27% over the next five years. According to Amazon's CEO Andy Jassy, AI is already a multibillion-dollar business, and he envisions it becoming a core component of every app developed from here on out. Most of that development is happening in the cloud, and much of it will happen at AWS.
- It has other growth businesses. Amazon's fastest-growing business today isn't even AWS; it's advertising, which increased 18% year over year in the first quarter. Amazon gives advertisers incredible exposure to shoppers who are on its platform looking for their products, and it recently started offering an ad-supported tier on its streaming platform.
At today's prices, Amazon stock isn't expensive relative to its historical norms. It trades at a price-to-earnings (P/E) ratio of around 35, near its lowest value in a decade, which gives it more room to expand. It's easy to see how Amazon stock could rise in value over the next few years and make it the most -- or nearly the most -- valuable company in the world.
Underappreciated growth opportunities
Keith Noonan (Alphabet): Alphabet has continued to serve up impressive business results, but its share price has actually fallen roughly 6% this year. Concerns that antitrust suits and investigations could result in the business being broken up have helped to dampen enthusiasm for the stock -- but I think that it stands out as one of the most promising investment opportunities in the Magnificent Seven.
While a potential breakup of the business could wind up creating some near-term valuation volatility, the individual units under the company's corporate umbrella continue to look very strong. It's also possible that businesses that would be spun off would wind up actually receiving higher valuations as stand-alones -- leaving the door open for Alphabet shareholders to see beneficial outcomes even if regulators disrupt the company's current structure.
Like other members of the Magnificent Seven, Alphabet is making big investments in artificial intelligence, but its potential to score big wins appears to be underappreciated compared to other members of the cohort. In addition to AI growth opportunities in digital ads and software, Alphabet's increased focus on designing and utilizing its own AI chips could help power growth for its cloud infrastructure business.
OpenAI recently announced that it was renting processing use of the company's tensor processing units (TPUs) through Google Cloud for AI inference applications, marking one of its first big pivots away from Nvidia's processors for this aspect of artificial intelligence. Given OpenAI's leading position in the generative AI space, it's not unreasonable to expect that some other big players in the category might follow suit.
Alphabet's long-term opportunity in the autonomous vehicle space also appears very far from being priced into its valuation. Through its Waymo subsidiary, the company currently occupies a leading position in the robotaxi and driverless-vehicle market. Waymo remains far ahead of Tesla in terms of vehicle-fleet size, trips, and road miles, and it's building a strong track record in vehicle safety. In addition to sales opportunities in the consumer robotaxi space, Waymo could allow Alphabet to tap into the massive market for self-driving vehicle delivery software.
With the company's core businesses looking undervalued and some potentially explosive growth opportunities taking shape, Alphabet could very well be the best-performing Magnificent Seven stock over the next five years.
