Meet the Only Three Magnificent Seven Stocks That Have Outperformed the Nasdaq Composite Over the Past Three Months - Latest Global News

Meet the Only Three Magnificent Seven Stocks That Have Outperformed the Nasdaq Composite Over the Past Three Months

The “Magnificent Seven” companies took the market by storm in 2023 with their market-destroying profits. But the group has shown signs of cooling off.

Nvidia (NASDAQ:NVDA), alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL)And Amazon (NASDAQ:AMZN) are the only three Magnificent Seven stocks to outperform Nasdaq Composite (NASDAQINDEX: ^IXIC) in the last three months.

Here’s why all three are doing well, whether these stocks are a buy, and how you should approach investing in the Magnificent Seven now.

A person sitting at a desk smiles while looking at a monitor displaying an upward trend graph.

Image source: Getty Images.

1. Nvidia

As with any stock that has risen quickly, investors have mixed feelings about Nvidia. Some may think it’s a bubble just waiting to burst, while others believe it’s the cutting edge of artificial intelligence (AI). However, so far the story has been driven by fundamentals, suggesting that Nvidia could continue to move higher.

Continued rapid growth can justify even the highest valuations. Especially when a company can double its profits in a single year. That’s exactly what analysts expect from Nvidia, with consensus earnings per share (EPS) estimates of $24.87 in 2025 and $31.54 in 2026.

For comparison, the company earned $11.93 in earnings per share in fiscal 2024 and reported full-year 2024 earnings on February 21.

The jump from fiscal 2024 to fiscal 2025 looks promising, but there are concerns that growth could cool in fiscal 2026. However, if Nvidia generates earnings per share of $31.30 in fiscal 2026, that would give the stock a price-to-earnings (P/E) ratio. Ratio below 29 based on current price.

That’s a compelling valuation for a high-growth leader in the early days of AI development. But it’s also based on numbers we won’t see for nearly two years.

We’ll get a better idea of ​​how Nvidia is moving toward these goals when the company reports first-quarter fiscal 2025 results on May 22. As long as the growth is there, the stock could continue to be a market winner. But if the narrative changes, even due to temporary factors, the stock could take a big hit.

2. Alphabet

At the end of February, Alphabet was the only Magnificent Seven stock with a cheaper valuation than that S&P 500. But that didn’t last long.

It’s been one of the hottest tech stocks lately, reaching a new all-time high in popularity.

NVDA chartNVDA chart

NVDA chart

Alphabet delivered phenomenal results last quarter and announced its first dividend in company history. But it’s not like the results were relatively better than their peers Metaplatforms.

Rather, the stock was held back due to AI-related mistakes and the belief that it lacked the innovation power of a competitor like Meta Platforms, which has done a masterful job of monetizing AI to improve product performance and its bottom line.

Alphabet is still looking for something new on the AI ​​table. The recent surge has more to do with the strength of its legacy businesses like Google Search, Google Cloud, YouTube and Android, and is a reminder that Alphabet is a cash cow with plenty of dry powder to reinvest in the company, make acquisitions, Buy back shares – and pay a dividend now.

Alphabet had some catching up to do, and the price now seems reasonable. To take the next step up, I think the company needs to show more innovation, but in the meantime there are some levers it can use to deliver value to shareholders.

3. Amazon

Amazon was one of the hardest-hit stocks in 2022, sinking to multi-year lows. The shares were so cheap that there were arguments that Amazon Web Services (AWS) alone was worth at least as much as the company’s entire market cap, which fell below $1 trillion in 2022 and stands at about $2 trillion today. Dollar lies.

The fact that the company was far oversold contributed to a gigantic comeback in 2023. But AWS didn’t even have a good year in 2023. Now AWS has turned the corner and the rest of the business is doing well too. Pretty much everything runs smoothly at Amazon, including cloud computing and national and international e-commerce.

The problem is that the stock still isn’t cheap and probably won’t be anytime soon. Consensus analyst estimates call for earnings per share of $4.54 in 2024 and $5.76 in 2025 – giving Amazon a huge P/E ratio of 32.5 based on 2025 earnings.

Some investors may prefer to value the company using the price-to-sales (P/S) ratio instead of the P/E ratio because the company spends so much money reinvesting in the business and records far smaller profits than it would with a more conservative one procedure would be possible. Analysts’ consensus revenue estimates for 2024 are $638.2 billion and for 2025 are $708.7 billion, which would give Amazon a P/E ratio of 2.75 based on 2025 numbers. From this perspective, Amazon is cheaper in terms of price.

AMZN horsepower ratio chartAMZN horsepower ratio chart

AMZN horsepower ratio chart

The half-full outlook would mean that the company deserves a higher price-to-earnings ratio today than in the past because every dollar of revenue is of higher quality. That’s true to some extent because AWS accounts for a larger share of the company’s revenue and AWS is a high-margin cash cow that increases the profitability of the overall business.

For comparison, AWS had operating income of $9.4 billion on revenue of $25 billion in the first quarter of 2024, compared to $5.1 billion on revenue of $21.4 billion in Previous year. AWS still only accounted for about 17.5% of total Amazon revenue last quarter. But just five years ago it accounted for a much smaller portion of the business, whereas today it can help drive sales and dominate the bottom line.

Even after the recent upswing, there is certainly a selling point for Amazon. But it doesn’t have the growth of Nvidia and is still an expensive stock, even based on estimates a year into the future.

Buy a top stock for the right reasons

It’s important to understand that sentiment and context can influence a stock’s short-term performance just as much – if not more – than fundamentals.

As a long-term investor, it can be helpful to know what determines a stock’s price to determine whether it represents good value or whether much of the expected growth has already been priced in.

The story is available on Nvidia. The forecasts are so high that the company has to produce incredible results just to provide good value. But so far it has lived up to the hype.

Alphabet is a great example of a company that didn’t make any significant changes, but whose stock price soared as investors were reminded that the strength of its core business dwarfs any AI issues.

Meanwhile, Amazon had sold far too much for such a high-value store. The growth is excellent, but the valuation is much higher today.

There are several reasons why the other four Magnificent Seven have underperformed over the past three months. But as a generalization I would say this Microsoft and Meta Platforms have set the bar so high (and both stocks have outperformed the Nasdaq Composite over the past year and a half) that it’s difficult to beat expectations.

In the meantime, Apple And Tesla are facing slowing growth, which compares poorly to their better-performing megacap peers.

Expectations are everything for investors. With Apple and Tesla back on track for growth, these stocks could more easily impress. But the level of uncertainty surrounding this outlook is why both stocks have fallen out of favor.

In comparison, Nvidia is a darling that is already expected to continue growing. And as we’ve seen with Microsoft and Meta’s recent earnings, while a company can continue to grow impressively, it still may not be enough to move the needle.

The easiest way to approach the Magnificent Seven is to choose the company or companies that you believe have the best chance of growth, or the combination of growth and value, over the next three to five years , rather than keep jumping back into what’s working for months.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. 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 $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.

Meet the Only 3 ‘Magnificent Seven’ Stocks That Outperformed the Nasdaq Composite Over the Last 3 Months was originally published by The Motley Fool

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