Should you buy the only “Magnificent Seven” stocks that are cheaper than the S&P 500 according to this key metric?

The “Magnificent Seven” companies — Microsoft, Apple, Nvidia, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), amazon, Meta platforms (NASDAQ: META)and adze — are known for their growth prospects and rewarding long-term shareholders with epic gains, but not so much for being value stocks.

However, earnings growth and a recent sell-off in Alphabet shares have pushed its forward price-to-earnings ratio below that of S&P 500. The forward P/E ratio is based on projections for the next 12 months rather than the past 12 months of earnings.

Here’s whether or not the cheapest Magnificent Seven shares are worth buying now.

Alphabet has a lot of strengths

At first glance, Alphabet seems far too cheap to ignore.

In addition to its cheap valuation, the company is nothing short of a cash cow. It has a diversified business in Google Search, Google Cloud, Android and YouTube. The conglomerate also has plenty of long-term growth projects — such as Waymo, Google Fiber and DeepMind — one of Alphabet’s AI research and development subsidiaries.

It exited last quarter with a whopping $110.9 billion in cash, cash equivalents and marketable securities, compared to just $13.3 billion in long-term debt.

Earlier this year, Alphabet initiated its first quarterly dividend payment. Along with its massive share buyback program, Alphabet is returning a lot of cash to shareholders.

Despite its strengths, there are some concerns about investing in Alphabet.

Alphabet faces many challenges

Alphabet has been in the spotlight for a recent antitrust ruling that could change its business practices. But big tech companies are no strangers to antitrust threats.

Amazon’s retail business and its cloud infrastructure division, Amazon Web Services (AWS), have long been under the antitrust microscope. Earlier this year, Apple underwent a sale in response to a civil antitrust lawsuit by the US Department of Justice for monopolizing smartphone markets. While the ruling, by itself, isn’t enough to compensate all of Alphabet’s pros, it’s certainly a red flag.

While investors shouldn’t dismiss the antitrust ruling, the more significant long-term threat is the health of some of Alphabet’s core business segments. Alphabet has been a pioneer in artificial intelligence (AI) for years, as AI is a core engine of Google’s search algorithm. Google’s virtual monopoly on search may be threatened by innovative tools such as OpenAI’s SearchGPT, which appeared in July.

Google Cloud is a third behind AWS and Microsoft Azure in cloud infrastructure market share.

The story continues

When it comes to an integrated ecosystem of software and hardware, Android and the Google Pixel don’t compare to Apple’s iOS and iPhone.

The competition at Meta Platforms is heating up. Last quarter, Alphabet generated $66.3 billion in revenue from Google Services and $23.5 billion in operating income. Google services include Google Search, YouTube ads, the Google Network and subscriptions, Google platforms and devices. Meanwhile, Meta Platforms’ family of apps, which includes Instagram, Facebook and WhatsApp, generated $38.7 billion in sales and $19.3 billion in operating income — making it almost as big as services Google from an operating income perspective and a much higher margin.

In the same quarter five years ago, Alphabet generated $38.9 billion in revenue and $9.2 billion in operating income, compared with $16.6 billion in revenue for the Meta platforms and $4.6 billion of operating income dollars.

The main takeaway is that the Meta family of apps is growing faster and has a higher margin than Google Search and YouTube. If Meta continues to capture screen time and market share, advertisers may divert funds from YouTube and move to Instagram.

The continued growth of mobile versus desktop is yet another factor here, as Instagram is built for mobile while YouTube is more built for desktop.

The alphabet is not a flashy purchase

Alphabet’s results are excellent and will likely continue to impress in the near term. However, there are major question marks over the long-term trajectory of the business.

Antitrust challenges are a drop in the bucket compared to Alphabet’s plethora of competition across its business units. Alphabet can make improvements to avoid the threat of SearchGPT and other AI-based engines. But it can’t quite as easily make a product that competes directly with Instagram — which makes YouTube vulnerable to eroding market share over time.

Alphabet isn’t an expensive stock, so it’s not a bad buy right now. But I wouldn’t be surprised if the company enters a period of slowing growth until it innovates significantly again.

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

Should you buy the only “Magnificent Seven” stocks that are cheaper than the S&P 500 according to this key metric? was originally published by The Motley Fool