The best ‘Magnificent Seven’ stocks to buy right now, according to Wall Street

The S&P 500 is widely regarded as the best indicator for the US stock market. But seven companies — the “Magnificent Seven” — account for a third of its market capitalization. The seven companies were also responsible for 60% of the gains in the S&P 500 since January 2023.

Investors looking for the best Magnificent Seven stocks to buy now should consider Wall Street’s average price targets, which are listed below in alphabetical order. Next to each target is the default advantage from August 18.

• Alphabet (GOOGL 2.28%) (GOOG 2.22%): $205 per share (up 26%)
• Amazon: $220 per share (up 24%)
• Apple: $250 per share (up 11%)
• Meta platforms: $575 per share (up 9%)
• Microsoft: $497.50 per share (up 19%)
• Nvidia: $140 per share (up 12%)
• Tesla: $225 per share (up 4%)

At the median, analysts are bullish on every Magnificent Seven stock, but none more so than Alphabet. In other words, Wall Street views Alphabet as the best Magnificent Seven stock to buy right now. Here’s what investors should know.

Alphabet is supercharging its growth engines with artificial intelligence

Alphabet has two important growth engines in its advertising and cloud computing businesses. Both markets are growing at a steady pace. Research firm eMarketer predicts that digital ad spending will grow 8% annually through 2027, and International Data Corp. estimates that public cloud revenue will grow 19% annually through 2028.

Alphabet has a strong presence in both markets. It is the world’s largest digital advertiser and the third largest public cloud by revenue. This essentially puts the company on a glide path to double-digit sales growth in the near future. But Alphabet is also using its artificial intelligence (AI) expertise to supercharge growth in both businesses.

In advertising, Alphabet has six products with more than 2 billion monthly users. These products support its ability to collect data and deliver relevant advertising content to Internet users, making Alphabet an indispensable partner for many brands, especially on Google Search. The company has integrated AI into all six products.

CEO Sundar Pichai recently said that generative AI is driving “increases in (Google Search) usage and increased user satisfaction with results,” particularly among users aged 18-24. This is encouraging given fears that Google could lose market share in search to OpenAI. Nothing like this has happened before, and the AI-centric innovation could strengthen Alphabet’s leadership in Internet search. In addition, Alphabet has also introduced AI-based tools that help media buyers create ad content and optimize profits.

In cloud computing, Google Cloud is much smaller than Amazon Web Services and Microsoft Azure, but the company has gained a percentage point in market share over the past year. This was due in part to demand for AI products, particularly the new Gemini model family. Stock gains could continue as enterprises invest more aggressively in AI.

Pichai recently told analysts, “Our AI infrastructure and generative AI solutions for customers (Google Cloud) have already generated billions in revenue and are used by over 2 million developers.” Demand for artificial intelligence products drove Google Cloud’s revenue growth to accelerate in the quarter ended in June, and management spoke upbeat on the earnings call about the long-term opportunity. Pichai believes AI will be a “big engine over time.”

Antitrust regulators recently dealt a blow to Alphabet

A US district court judge recently ruled that Alphabet violated antitrust law by paying browser developers and smartphone makers to make Google Search the default search option. For example, the company paid Apple about $20 billion in 2022 for default placement on the Safari browser and iOS devices. Alphabet also pays Samsung an undisclosed amount for similar benefits.

The outcome of the trial remains unclear. But JP Morgan Analysts estimate that the contested contracts account for about 25 percent of Google Search revenue, or 15 percent of total revenue. Alphabet plans to appeal the recent ruling, but the appeals process could take years. Finally, it appears that the company will be prohibited from paying to make Google Search the default option on browsers and devices. This could theoretically have a substantial impact on its financial results.

In 2020, Alphabet estimated that the loss of default position on Safari browsers and iOS devices could cost more than $32 billion in annual revenue. That said, some analysts believe the company could benefit. “If users are given a choice screen and the majority select Google, (Alphabet) could save more money in payments to Apple, Samsung and others than it loses in search advertising,” according to The Wall Street Journal.

Alphabet shares are trading at a reasonable price compared to Wall Street’s growth forecast

In short, Alphabet has a strong presence in digital advertising and cloud computing, and the company is creating new monetization opportunities by adding AI features to both product ecosystems. There are undoubtedly risks related to regulatory scrutiny, but Google Search has tremendous brand authority that could help it overcome any hurdles arising from ongoing litigation.

With that in mind, Wall Street expects Alphabet to grow earnings per share by 17% annually over the next three years. This consensus estimate makes the current valuation of 23.4 times earnings look reasonable. These figures give a PEG ratio of 1.3, which is slightly below the three-year average of 1.4. Investors should consider buying a small position in this Magnificent Seven stock today.