The "Magnificent Seven" has been a dominant group in the market over the past few years. It's made up of:
- Microsoft (NASDAQ: MSFT)
- Apple (NASDAQ: AAPL)
- Nvidia (NASDAQ: NVDA)
- Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)
- Amazon (NASDAQ: AMZN)
- Meta Platforms (NASDAQ: META)
- Tesla (NASDAQ: TSLA)
My top Magnificent Seven stock to buy just reported its latest results, and they were outstanding. However, the market didn't reward the stock, and it's down alongside the rest of the group. Is this a buying opportunity for one of the best stocks on Wall Street? I think so.
Alphabet's business is rising steadily
My favorite stock in the Magnificent Seven right now is Alphabet. Over the past year, Alphabet has posted some excellent results and is starting to perfect its artificial intelligence (AI) product offering.Additionally, its advertising segment (which accounts for around three-fourths of all revenue) is doing well for how mature the business segment is. In the second quarter, sales rose 11% year over year to $64.6 billion. W
While some investors may be concerned that this growth isn't nearly as quick as it needs to be for Alphabet to stand out, I don't view it that way. Alphabet's ad segment is a reliable business that creates massive cash flows for the company, allowing it to invest in next-generation technology like AI. It also funds the growth of another vital segment: Google Cloud.
Google Cloud is the smallest of the big three cloud computing players. This size disadvantage can be traced back to Google's late entry into this market, but it's still growing quickly. In Q2, revenue grew 29% year over year to $10.3 billion. It also posted an operating margin of 11%, which is still far behind what industry leader Amazon Web Services (AWS) delivered in the first quarter with a 38% margin. Once Google Cloud reaches scale and improves its operating margin to similar levels, this segment will provide a meaningful profit boost, although that is still some years away.
Altogether, Alphabet's quarter was solid, with revenue growing 14% year over year and earnings per share (EPS) rising from $1.44 to $1.89. It was hard to find a fault in the quarter, but it was also difficult to find a "wow" moment.
The stock fell 5% the day after trading, dragging the rest of the market down with it. But I think this pullback is a mistake and provides investors with an opportunity to get into the stock, now that it's down around 10% from its highs.
Unlike its peers, the stock doesn't have an expensive premium
For the most part, the Magnificent Seven stocks are incredibly pricey when compared to the broader market. However, Alphabet doesn't have the same premium, so investors don't have as much risk on the table by investing in Alphabet. After the pullback, Alphabet's stock trades for 23 times forward earnings.
GOOG PE Ratio (Forward) data by YCharts.
While that only retraces its valuation to a few months ago, it prices it in the vicinity of the broader S&P 500 index, which trades at 22.7 times forward earnings. When you buy Alphabet stock at these levels, you're essentially buying an above-average company for a market-average price. That's a great deal, and investors should take advantage of it.
Through Alphabet's consistent revenue growth, expanding dividend, and aggressive share repurchase programs (Alphabet repurchased over $15 billion in stock during Q2), it's a shoo-in for a company that can grow earnings faster than 10% annualized. That's a fantastic investment proposition, and it's one that investors need to understand.
You don't have to hit a home run every time you invest. Sometimes, the steady growers that can outperform the market by a couple of percentage points each year are the best investments, and I think Alphabet falls into this category.
Should you invest $1,000 in Alphabet right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, 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.
