Magnificent 7 Showdown: One Stock to Buy, 2 to Sell

The Magnificent 7 stocks have been the talk of Wall Street, and for good reason. These tech titans — Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA) — have delivered stellar returns, driving the stock market to new heights. In fact, these seven stocks now account for over 30% of the S&P 500’s total market value. It’s hard not to be impressed by their dominance.

However, as the current economic cycle comes to a close with rate cuts just a few months away, it pays to reconsider which one of these stocks are truly worth piling more into. We must look beyond the hype and critically evaluate each of these stocks.

That’s precisely what I aim to do in this article. I believe that while some Magnificent 7 stocks are poised for continued success, others may struggle to maintain their momentum. By taking a closer look at their fundamentals, competitive advantages, and growth prospects, I’ll identify one stock that I believe is a compelling buy and two that I think investors should consider trimming.

As a final note, I would not recommend shorting any of these stocks. It’s likely to end badly.

Microsoft (MSFT)

Microsoft’s early investments in OpenAI are really starting to pay off. The company’s Azure cloud platform is powering the wildly popular ChatGPT, and future AI models like Sora are expected to rely heavily on Azure infrastructure as well. This is a huge win-win for Microsoft – not only do they get to ride the wave of excitement around generative AI, but they also get to monetize it through increased usage of their cloud services.

But Microsoft is much more than just an AI play. The company is a true blue-chip stock that dominates the productivity software market with essential tools like Windows, Office and Excel. No matter the economic environment, businesses and individuals alike will always need these products to get work done. That gives Microsoft a level of stability and resilience that is hard to match.

Looking at the financials, Microsoft knocked it out of the park last quarter with revenue of $61.86 billion, beating estimates by nearly $1 billion. The company’s cloud business was particularly strong, growing 23% year-over-year. Analysts are overwhelmingly bullish on the stock, with 33 out of 34 rating it a “Buy”. The average price target of $501 implies a 10% upside from current levels.

When you put it all together, I believe Microsoft is hands-down the best Magnificent 7 stock you can buy right now.

Tesla (TSLA)

Source: Vitaliy Karimov / Shutterstock.com

Tesla has been on a lately, with the stock hitting new 2024 highs. The electric vehicle pioneer has added a staggering $200 billion to its market cap during this rally.

There are certainly plenty of megatrends that are working in Tesla’s favor. The global shift to EVs continues, with sales projected to hit 17 million units in 2024, over 20% higher than last year. Tesla is also increasingly being viewed more as an AI company than just a carmaker, with CEO Elon Musk emphasizing the potential of its robotaxi platform and autonomous driving technology. Generative AI is another huge tailwind that could boost demand for Tesla’s high-tech vehicles. And, of course, rate cuts are coming in a few months.

Analysts are taking notice of the momentum. Wedbush’s Daniel Ives believes “the worst is in the rear-view mirror for Tesla” and cited signs of a rebound in the key China market. The company beat delivery estimates last quarter, though it still marked the first back-to-back quarterly decline in over a decade.

Now, I’ve been quite bullish on Tesla’s long-term prospects for a while. But after this monster rally, the stock is starting to look a bit stretched in the near term.

With this in mind, I wouldn’t be afraid to take some profits off the table after this spike to $262. Tesla is a great company to own for the long haul, but it can also be smartly traded around key technical and sentiment shifts. It may be time for a healthy breather before the next leg higher.

Nvidia (NVDA)

Source: Shutterstock

While I’m very optimistic about Nvidia’s long-term prospects, the stock’s meteoric rise gives me some pause. After an over 27,000% gain in the past decade, how much juice is left? Nvidia’s forward P/E of 47x isn’t exactly cheap. Rising competition is also a concern, with tech giants developing in-house AI chips and a flood of venture capital pouring into AI semiconductor startups.

Of course, Nvidia posted revenue surging 262% to a record $26 billion. Data center revenue skyrocketed 427%. However, no one knows how long this growth will last going forward.

I still view Nvidia as a good long-term holding for playing the AI megatrend. But at these lofty levels, I wouldn’t be surprised to see the stock take a breather. If I owned Nvidia, I’d consider trimming my position and locking in some of the massive profits. The growth runway is long but not infinite.

On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.