Nvidia (NVDA 1.20%), Alphabet, Apple, Microsoft, Amazon, Meta Platforms, and Tesla collectively form the "Magnificent Seven," a group of seven leading tech-focused companies that make up roughly a third of the S&P 500 (^GSPC 1.08%).
However, as of market close on Feb. 17, each Magnificent Seven stock was down more than the S&P 500 year to date. Microsoft is selling off in lockstep with broader declines among software stocks. And investors are concerned that hyperscalers like Amazon are overspending on artificial intelligence (AI).
Here's why Nvidia has what it takes to continue outperforming the S&P 500 and lead the Magnificent Seven in 2026.
Image source: Getty Images.
Nvidia's blowout results
On Feb. 25, Nvidia delivered jaw-dropping fiscal 2026 earnings and provided excellent guidance. The chip giant generated a record $215.94 billion in revenue -- converting more than 55% of sales into $120.07 billion in net income. It also raked in $96.58 billion in free cash flow (FCF), which was plenty to cover $41.1 billion in stock repurchases and dividends.
Based on $4.90 in fiscal 2026 diluted earnings per share, $3.94 in diluted FCF per share, and a stock price at the time of this writing of $186.69, Nvidia is trading at 38.1 times earnings and 47.4 times FCF. That sounds expensive, but it's actually quite cheap for a company that just grew earnings by 66.7% year over year and is guiding for $78 billion in first-quarter fiscal 2027 revenue with 75% gross margins, which would be a 76.9% year-over-year revenue increase and margin expansion from first-quarter fiscal 2026.
NASDAQ: NVDA
Key Data Points
Setting the stage for sustained growth
It's one thing to grow rapidly when a company is generating a few billion in net income, which is exactly what Nvidia did four years ago in fiscal 2023. But the chipmaker is now so large that it takes a lot more to move the needle -- making Nvidia highly dependent on sustained hyperscaler spending on data center compute, networking, and storage.
Nvidia announced Blackwell in March 2024, and it could have just ridden the coattails of its success for years. But because Nvidia generates so much cash flow, it can afford to aggressively spend on research and development and product innovation.
Nvidia unveiled its Rubin platform in January, which includes six different chips that work together to reduce or eliminate AI workload bottlenecks. Building AI supercomputers tailored for megascale data centers will allow Nvidia to capture more of the data center market.
Capitalizing on agentic AI
Nvidia's growth is explosive, but it remains highly dependent on hyperscaler spending. However, Anthropic, OpenAI, and Groq are expanding Nvidia's customer base beyond the major cloud computing giants. On its Feb. 25 earnings call, Nvidia announced a $10 billion investment in Anthropic. Reports indicate Nvidia is close to investing $30 billion in OpenAI.
Nvidia's agentic AI potential can't be understated. Companies building internal agents and integrating them into existing systems will increasingly call on application programming interfaces (APIs) from AI models, which will demand more compute from cloud providers, which will depend on Nvidia to power that compute.
Nvidia is not only the high-margin bedrock of generative AI but is also incredibly well positioned to serve as the foundational layer for further AI advancements. Nvidia remains one of the best catch-all ways to invest in AI without having to bet on a particular hyperscaler or software company.
