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New: Introducing “Why Is It Moving?” - lightning-fast, AI-driven explanations of stock moves
AI spending benefits multiple companies on this list.
There isn't nearly enough AI computing capacity to support current AI demand.
CNBC's Jim Cramer popularized the "Magnificent Seven" term to describe a group of stocks that capture which big tech stocks lead the market. It's made up of:
If you bought shares of these stocks five years ago, you're a happy investor. This group still makes up a huge chunk of the largest stocks in the market, with seven of the top eight largest stocks by market cap listed on U.S. exchanges belonging to this group. Of these seven, I think five are excellent buys now, although one could also sneak onto this list.
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What are the five? Let's find out.
Image source: Getty Images.
Since there are more stocks that I think are buys than stocks to avoid, let's start with the two that I'm avoiding first.
Apple headlines this list as a stock I want no part of owning. While it has been a top performer over the past decade, a lot of that growth can be attributed to multiple expansion, which in this case occurred because investors were willing to pay more for the stock. Apple is one of the most expensive stocks in this group, despite having some of the slowest growth rates. (Note: Nvidia and Tesla were removed from this graph because they skew the growth and valuation figures)
MSFT PE Ratio (Forward) data by YCharts
As a result, the other stocks are far more attractive.
Tesla is also another one I'm not sure about. It's seeing some headwinds in its EV business, but it also has several promising technologies coming down the pipeline. I'm more neutral on Tesla than I am on Apple, but it just doesn't look like as good a buy as these other five right now.
The biggest trend around the other five is clearly artificial intelligence. A boatload of money is being spent on AI infrastructure right now, and many of these companies are reaping the benefits.
Nvidia is clearly the biggest beneficiary, as its graphics processing units (GPUs) are being purchased in massive quantities by the AI hyperscalers to power workloads. There doesn't appear to be any signs of this trend slowing down, and Nvidia will continue to be an excellent stock to hold over the next few years as AI data centers continue to be built.
Next, Alphabet was once a concern for investors that generative AI competitors would eliminate it. However, Alphabet appears to have weathered the storm and has integrated generative AI into the Google Search engine. AI Search Overviews have become a popular feature, and are used by millions around the globe. This helped secure Alphabet's future, but it also has another promising segment that shares some overlap with Amazon and Microsoft.
Cloud computing is a monster market that has received a huge AI boost. Most companies don't have the resources to maintain a massive data center, so it makes more sense to rent the computing power necessary to run AI models from cloud providers like Google Cloud, Amazon Web Services (AWS), and Microsoft Azure. These divisions are major growth and profit drivers for all three, although Amazon's business benefits the most, with 53% of Amazon's operating profits coming from AWS during Q2. Cloud computing is the primary reason to own Amazon and Microsoft stock, and the growth is far from over in this industry.
Lastly, there is Meta Platforms. Unlike the previous four, Meta doesn't have a division that's benefiting from all of this AI spending. Yet.
Meta is developing its AI models to boost its advertising prowess across its social media platforms. It has already seen some success, but there is still a lot of room for improvement here. Additionally, Meta is launching AI glasses that help bring AI into the real world. Time will tell if this endeavor is worth the massive amount of money Meta has poured into this division, but if it becomes a hit, it could launch a brand new revenue stream for Meta. Even without some of the benefits that AI could have on Meta's business, it's still posting incredible results, with its ad business delivering 22% year-over-year revenue growth during Q2 and projected to grow revenue at a 20% rate overall in Q3.
Meta is a strong investment option alongside most of its other peers in the "Magnificent Seven," and I wouldn't be surprised to see this group outperform the S&P 500 moving forward.
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Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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