Forget Nvidia: 2 Brilliant "Magnificent Seven" Artificial Intelligence (AI) Stocks to Buy Hand Over Fist, According to Wall Street
OK, I know what you're thinking.
Forget Nvidia (NASDAQ: NVDA)? The company is the undisputed leader in the artificial intelligence (AI) revolution and the best-performing "Magnificent Seven" stock since early last year. Furthermore, Nvidia generated triple-digit year-over-year growth for three successive quarters and is forecasting another one for the current quarter. I've been bullish on Nvidia for a long time.
You're absolutely right on every one of those counts. And no, I haven't changed my mind. I'm still as bullish on Nvidia as ever. Here's the thing: The stock is selling for 80 times earnings and 39 times sales, and despite its growth trajectory, some investors won't even consider a stock with a valuation of that magnitude, even if the forward multiples of 38 times earnings and 18 times sales are more favorable.
For investors who have absolutely no intention of buying Nvidia at this level, I offer two alternatives from among the other six stocks in the Magnificent Seven: of Alphabet, Amazon (NASDAQ: AMZN), Apple, Meta Platforms, Microsoft (NASDAQ: MSFT), and Tesla.
These stocks still have significant upside but with more reasonable valuations. Furthermore, while Wall Street loves Nvidia, they love Amazon and Microsoft even more.
Magnificent Seven Buy No. 1: Amazon
It's easy to see why Wall Street has a soft spot for Amazon. The company revolutionized digital retail, turning a humble online bookstore into an e-commerce juggernaut. Amazon controlled roughly 38% of the e-commerce market last year, according to online data provider Statista. For context, that's more than the next 14 digital retailers combined. The improving economy will no doubt boost its fortunes over the coming year and beyond.
Amazon Web Services (AWS) is the undisputed leader in the cloud infrastructure space it pioneered, with 31% of the market, according to market analyst Canalys. In response to the accelerating demand for generative AI, Amazon beefed up its cloud offerings, providing the company with a compelling opportunity for future growth.
Let's not forget Amazon's digital advertising business. The company was already the third largest online advertiser, behind just Google and Meta Platforms -- and that was before Amazon added advertisements to its Prime Video that will surely boost its revenue.
Investors might be surprised to find that, of the Magnificent Seven stocks, Amazon is the hands-down favorite among Wall Street analysts, not Nvidia. Of the 47 analysts who cover Amazon, 91% rate the stock a buy or strong buy, and none recommends selling. Only 55% rate Nvidia stock a buy, with the rest moving to hold or sell based on valuation concerns.
When it comes to Amazon, Mizuho analyst James Lee is the most bullish among his Wall Street colleagues. He has a buy rating and $230 price target on the stock, which suggests roughly 30% upside. The analyst cites improving revenue for AWS and operating efficiency gains for Amazon's e-commerce business as fueling his positive take.
Given the multiple drivers for future growth, it's easy to see why Amazon is a favorite among Wall Street analysts. Furthermore, at less than 3 times next year's sales, Amazon stock is a bargain.
Magnificent Seven Buy No. 2: Microsoft
It's not difficult to see the appeal of Microsoft. It's best known for its ubiquitous Windows operating system and its leading suite of business productivity software, Office, which provides the company with a strong foundation upon which to build its future.
Microsoft Azure is the No. 2 Cloud provider, with 26% of the market, and growth recently accelerated to 30% year over year in the most recent quarter, outpacing AWS and Google Cloud at 13% and 26%, respectively. Helping fuel those market share gains was the company's quick move into generative AI and its suite of AI-fueled digital assistants dubbed Copilot.
These moves increased demand for Azure. In its fiscal 2024 second quarter, ended Dec. 31, the company noted that 6 percentage points of its cloud growth was the result of growing demand for AI services.
Microsoft is also more highly rated on Wall Street than Nvidia. Of the 34 analysts who offered opinions in March, 79% rate the stock a buy or strong buy, also well ahead of the GPU specialist.
Analysts at Truist are Microsoft's biggest cheerleaders on Wall Street. They have a buy rating and a Street-high price target of $600, which represents 42% upside for investors. The analysts cite Microsoft's early implementation of generative AI and see additional demand for Azure and Copilot as driving future growth.
Microsoft's early moves in AI and strong legacy businesses help illustrate why the stock is preferred on Wall Street. Furthermore, at less than 36 times forward earnings, Microsoft is selling at a slight premium to the multiple of 28 for the S&P 500. However, given its robust growth and future prospects, Microsoft is deserving of its premium -- and it's still cheaper than Nvidia.
Should you invest $1,000 in Amazon right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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 January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Forget Nvidia: 2 Brilliant "Magnificent Seven" Artificial Intelligence (AI) Stocks to Buy Hand Over Fist, According to Wall Street was originally published by The Motley Fool
