Interest rates are finally coming down as the Federal Reserve announced a significant 0.5% rate cut in September. Further interest rate cuts are likely.

Lower rates are typically seen as good news for smaller businesses. However, they also benefit large companies, including the market-leading Magnificent Seven group of stocks. What’s the best Magnificent Seven stock to buy if the Fed cuts interest rates?

How interest rate cuts could benefit the Magnificent Seven

First, let’s look at how lower interest rates could help members of the Magnificent Seven. In my opinion, three ways are the most important.

First (and most obvious), lower interest rates lower Magnificent Seven companies’ borrowing costs. This makes it cheaper to refinance maturing debts. They also allow companies to finance new projects that could lead to future growth.

Second, lower interest rates can increase customer spending. This can happen regardless of whether the customers are individual consumers or organizations.

Third, lower interest rates may lead to a weakening of the US dollar. This benefits Magnificent Seven companies that export to other countries by making their products more competitive in international markets.

Review of the Magnificent Seven

Interest rate cuts are likely to benefit all Magnificent Seven stocks. However, some will benefit more than others.

Amazon (AMZN -1.51%) has the highest debt on its books at $157.8 billion. Apple (AAPL -0.49%) And Microsoft (MSFT -0.14%) with debts of $101.3 billion and $97.8 billion, respectively. Lower interest rates could help these companies the most in terms of reducing interest expenses when their debt comes due (assuming interest rates are still lower at that time).

Metaplatforms (META 1.74%) And alphabet (GOOG -0.06%) (GOOGL) are in the middle of the pack with debts totaling almost $38 billion and $28.7 billion, respectively. Tesla‘S (TSLA -3.36%) The debt burden is only 12.5 billion US dollars Nvidia‘S (NVDA 3.37%) The $10 billion debt is the lowest of the Magnificent Seven.

I suspect that the increase in customer spending due to lower interest rates will be most pronounced among companies with the most expensive products. Tesla’s electric vehicles can cost around $40,000 at their lowest, with the expensive models costing over $113,000.

Companies also spend significant amounts of money purchasing Nvidia’s graphics processing units (GPUs). Lower rates could particularly help startups and smaller companies expand their artificial intelligence (AI) development efforts.

Amazon, Alphabet and Microsoft operate cloud service platforms that could benefit from higher customer spending due to lower tariffs. All three companies market consumer goods, whose sales could also increase. The same goes for Apple and, to a lesser extent, Meta.

Apple and Tesla would probably benefit the most from a weaker US dollar. Sales outside the US are greater than US sales for both companies. But all of the other “Magnificent Seven” also recorded significant international sales.

The best Magnificent Seven stock to buy when prices are falling

I think Amazon and Tesla will likely benefit the most from the Fed’s rate cuts. Which stock is better to buy? I would go to Amazon.

Tesla is much more expensive than Amazon due to expected earnings multiples and increasing competition. Worse, consumer interest in electric vehicles appears to be waning.

Meanwhile, Amazon’s AWS cloud platform has a massive AI tailwind behind it. Advertising on Prime Video has become an important new growth driver for the company. Amazon’s technology investments should continue to pay off in increased profitability for its e-commerce business. Project Kuiper, a new satellite internet service, is expected to be another new source of growth.

All of this would be positive for Amazon without lower interest rates. However, lower interest rates are likely to give the company additional momentum – and push its shares higher.