This summer, the previously unassailable stocks of the Magnificent Seven have experienced an uncharacteristic period of weakness. Investors have considered both their big gains over the past year and their relatively high valuations, and have looked to see if there are more attractive opportunities in other sectors of the market. This has led to some rotation into more value-oriented sectors such as healthcare and financials.
But these companies are still among the world’s market-dominating companies, and the positive side of this summer high is that there is now an opportunity to buy some of their shares at more attractive entry prices. So let’s take a look at three of the top stocks in the “Magnificent Seven” – GOOGL, AAPL and MSFT – and find out which one represents the most attractive investment opportunity for investors right now.
Amid this summer’s tech sell-off, Alphabet, the parent company of Google, YouTube and others, is in a correction zone, down 16.6% from its 52-week high. But Alphabet stock has a lot of positives, and I’m optimistic.
Stocks in the Magnificent Seven aren’t typically associated with value investing, but there’s a reason Alphabet keeps popping up in the portfolios of some of the market’s biggest value investors, like Himalaya Capital’s Li Lu, Oakmark’s Bill Nygren and Oakcliff’s Bryan Lawrence. In fact, Google, across its two classes of stock, makes up nearly 40% of Himalaya’s portfolio, making it a huge bet for Lu.
These value superstars recognize that Alphabet is surprisingly cheap. The stock trades at 21.1 times consensus estimates for 2024, but looks even cheaper for 2025, when it will trade at just 18.5 times forecasts.
This means that Alphabet is trading at a discount to the broader market. The S&P 500 (SPX) trades at 23.2 times earnings and 21.9 times forward earnings. This represents an attractive opportunity for a world-class company with a dominant position in search and other strong businesses such as YouTube, especially given its impressive earnings growth of 21.6% per year over the past five years.
Yes, Alphabet faces challenges from regulators—a federal judge recently ruled that Google violated antitrust laws, and the Justice Department may push for a breakup. But that’s not necessarily the most likely outcome, and Google can appeal.
And even if it does happen, it could actually be a boon for Alphabet shareholders, as owning standalone companies could unlock additional value. Imagine getting a spinoff of YouTube stock? Many analysts believe YouTube would be an extremely lucrative standalone company and that some of its value is obscured by being part of a larger conglomerate.
I’m bullish on Alphabet because it’s trading in the value stock space following this summer’s correction, and its cheap valuation seems like a great bargain for a dominant company with a track record of strong earnings growth. Additionally, any potential clash with regulators could have the silver lining of unlocking new value for shareholders. Additionally, analysts believe this Strong Buy-rated stock has significant upside potential, as we’ll discuss below.
What is the price target for Alphabet shares?
As for Wall Street, GOOGL receives a consensus rating of Strong Buy based on 29 buy recommendations, seven hold recommendations, and no sell recommendations over the past three months. The average price target for GOOGL stock of $205.18 implies an upside potential of 27.2% from current levels.
View more GOOGL analyst ratings
Apple, the world’s largest company by market cap, has held up better than Alphabet and many of its peers in the tech sector during this summer’s rotation. It’s only 5.2% below its high. While that’s great for long-time Apple holders, it also means there are fewer opportunities for new investors to buy ahead of a rebound. Apple stock is also quite a bit more expensive than Alphabet’s (not to mention the broader market), which makes me neutral on the stock. Shares trade at 33.1 times 2024 earnings and 29.9 times consensus 2025 earnings estimates.
The stock’s earnings growth has also been slower than Google’s. While Google has grown its earnings by 21.6% per year over the past five years, Apple’s growth has been a solid but slower 15.6%. Apple’s growth over the next five years is also expected to be slower than Alphabet’s, with forecast growth of 11.1% versus 20.5% for Alphabet. Of course, five years is still a long way away, so these numbers should be viewed with caution, but the gap is wide.
Finally, Warren Buffett’s Berkshire Hathaway ($BRK.B), the company’s largest shareholder with a huge stake, recently shocked the market when he sold nearly half of his position. Apple is still Berkshire’s largest holding, but perhaps Buffett sees less upside potential in Apple than he has in the past.
Apple has always been a great company and a great stock, but for the reasons mentioned above, it currently appears to have less upside potential than Google.
What is the price target for AAPL stock?
AAPL receives a Moderate Buy consensus rating based on 24 Buy, seven Hold, and one Sell ratings over the past three months. The average price target for AAPL shares of $248.78 implies an upside potential of 10.7% from current levels.
View more AAPL analyst ratings
An analysis of the stocks of the “Magnificent Seven” simply wouldn’t be complete without Microsoft. The mega-cap company’s shares have fallen 10.3 percent since their peak – less than Alphabet, but more than Apple.
In terms of valuation, Microsoft is also much more expensive than Alphabet and is roughly in line with Apple, trading at 31.6 times consensus estimates for fiscal 2025 earnings (Microsoft just reported its fourth-quarter earnings and is already in fiscal 2025).
Microsoft’s earnings growth also falls between that of Alphabet and Apple – the company has increased its earnings per share by 18.5% over the past five years and is expected to grow earnings per share by 14.6% per year over the next five years.
That’s better than Apple’s earnings growth but lags behind Alphabet’s, and given the wide valuation gap between the two stocks, Alphabet clearly seems like the more attractive buy. Overall, I’m neutral on MSFT stock given its relatively high valuation.
What is the price target for MSFT stock?
MSFT receives a Strong Buy consensus rating based on 32 buy recommendations, zero hold recommendations, and zero sell recommendations over the past three months. The average price target for MSFT shares of $503.19 implies an upside potential of 19.5% from current levels.
View more MSFT analyst ratings
The winner is…
Of these three giants of the “Magnificent Seven,” Alphabet looks by far the most attractive buying opportunity right now. Not only is the stock significantly cheaper than Apple or Microsoft, but it has posted better earnings growth over the past five years and is expected to continue doing so. Alphabet has also sold more than its peers, providing a greater buying opportunity ahead of a recovery.
Below, you can see a comparison of Alphabet, Apple, and Microsoft using TipRanks’ stock comparison tool, which allows investors to compare up to 10 stocks at once based on a variety of factors, from valuation to recent performance. As you can see from the table, Alphabet is by far the cheapest stock in terms of valuation, and analysts expect it to have the most upside potential.
One of the biggest obstacles facing Alphabet is the US Department of Justice lawsuit. But even if that leads to the company being split up, businesses like YouTube would be extremely attractive standalone companies on their own, and a split could create significant value for shareholders.
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