The S&P500 is generally considered the best gauge for the entire U.S. stock market. But seven companies – the “Magnificent Seven” – make up a third of its market capitalization. These seven companies have also been responsible for 60% of the S&P 500’s gains since January 2023.

Investors looking for the best Magnificent Seven stock now should consider Wall Street’s median price targets, listed below in alphabetical order. Next to each target is the implied upside potential as of August 18.

• alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG): $205 per share (26% upside)

• Amazon: $220 per share (24% upside potential)

• Apple: $250 per share (11% upside potential)

• Metaplatforms: $575 per share (9% upside potential)

• Microsoft: $497.50 per share (19% upside potential)

• NVIDIA: $140 per share (12% upside potential)

• Teslas: $225 per share (4% upside potential)

On average, analysts see upside potential in every Magnificent Seven stock, but none more so than Alphabet. In other words, Wall Street considers Alphabet the best Magnificent Seven stock to buy right now. Here’s what investors should know.

Alphabet drives its growth engines with artificial intelligence

Alphabet has two key growth engines with its advertising and cloud computing businesses. Both markets are growing steadily. Research firm eMarketer estimates that digital advertising 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, putting the company on track for double-digit revenue growth in the foreseeable future. But Alphabet is also leveraging its expertise in artificial intelligence (AI) to drive growth in both businesses.

In the advertising space, Alphabet has six products with more than 2 billion monthly users. These products support the company’s ability to collect data and deliver relevant advertising content to internet users, making Alphabet an indispensable partner for many brands, especially when it comes to Google Search. The company has integrated AI into all six products.

CEO Sundar Pichai recently said that generative AI insights are leading to “an increase in usage (of Google Search) and higher user satisfaction with the results,” especially among users aged 18 to 24. That’s encouraging given fears that Google could lose market share in search to OpenAI. So far, nothing of the sort has happened, and AI-focused innovations could cement Alphabet’s leadership position in internet search. In addition, Alphabet has also introduced AI-powered tools to help media buyers create ad content and optimize profits.

The story continues

In cloud computing, Google Cloud is significantly smaller than Amazon Web Services and Microsoft Azure, but it managed to gain one percentage point of market share last year, partly due to demand for AI products, particularly the new Gemini family of models. The market share gains could continue as companies invest more aggressively in AI.

Pichai recently told analysts, “Our AI infrastructure and generative AI solutions for (Google Cloud) customers have already generated billions in revenue and are used by more than 2 million developers.” Demand for AI products boosted Google Cloud’s revenue growth in the quarter ended in June, and management was optimistic about the long-term opportunity on the conference call. Pichai believes AI will be a “big driver” over time.

Antitrust authorities recently dealt Alphabet a blow

A U.S. district 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 the default placement in the Safari browser and on iOS devices. Alphabet also pays Samsung an undisclosed amount for similar perks.

The outcome of the legal dispute is still unclear. JPMorgan Chase & Co. Analysts estimate that disputed contracts account for about 25% of Google Search revenue, or 15% of total revenue. Alphabet plans to appeal the latest ruling, but the appeals process could take years. Ultimately, it seems likely that the company will be banned from paying to make Google Search the default option in browsers and devices. That could, in theory, have a significant impact on financial results.

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

Alphabet stock is trading at a reasonable price compared to Wall Street’s growth forecast

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

With that in mind, Wall Street expects Alphabet to grow its earnings per share at a rate of 17% annually over the next three years. That consensus estimate makes the current valuation of 23.4x earnings seem reasonable. Those numbers work out to a PEG ratio of 1.3, slightly below the three-year average of 1.4. Investors should consider taking a small position in this Magnificent Seven stock today.

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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, 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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is a promotional partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, JPMorgan Chase, 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.

The Best Magnificent Seven Stock to Buy Now, According to Wall Street was originally published by The Motley Fool