Ranking of the “Magnificent 7” stocks from cheapest to most expensive.

For over a year, Wall Street has been putting smiles on most investors’ faces. Following the bear market decline in 2022, the iconic Dow Jones Industrial Averagebroad base S&P 500And thanks to innovation Nasdaq CompositeAll three major stock indices hit record highs in 2024.

There is no shortage of factors supporting the current bull market, including low inflation rates and the continued strength of the U.S. economy, but much of the heavy lifting falls on the shoulders of the “Magnificent Seven.”

Image source: Getty Images.

The Magnificent Seven are some of Wall Street’s most influential companies.

The Magnificent Seven represent seven of the largest and most prominent companies on the planet in terms of total revenue and innovation. The Magnificent Seven, listed in descending order of market capitalization, are:

• microsoft (MSFT 2.44%)
• apologize (AAPL 1.09%)
• nvidia (NVDA -3.24%)
• Amazon (AMZN 1.24%)
• alphabet (google 2.37%) (GOOG 2.54%)
• meta platform (meta -0.76%)
• tesla (TSLA -4.12%)

In addition to easily outperforming all three major stock indexes over long periods of time, the Magnificent Seven provides a sustained competitive advantage, if not a completely impenetrable moat.

• Microsoft is the dominant provider of desktop operating systems (Windows), and thanks to Azure its share of global cloud infrastructure services spending has jumped to 25%.
• Apple’s iPhone has captured more than half of the U.S. smartphone market share since it became 5G-capable. The company also repurchased a whopping $651 billion in stock in 11 years.
• Nvidia’s A100 and H100 graphics processing units (GPUs) could command a virtual monopoly (over 90% share) of GPUs used in high-performance data centers this year.
• Amazon is leading in two categories. It is by far the largest player in e-commerce, accounting for 31% of global cloud infrastructure services spending through Amazon Web Services (AWS) as of September 2023.
• Alphabet’s Google has a virtual monopoly on Internet search, with a global share of nearly 92% as of February. Alphabet also owns the second most visited social site (YouTube) and the third most visited cloud infrastructure services platform (Google Cloud).
• Meta Platforms is the owner of Facebook, the world’s most visited social site. Collectively, Meta, including Instagram, WhatsApp, Threads, and other apps, attracts nearly 4 billion monthly active users to its social media “real estate.”
• Tesla is North America’s leading producer of electric vehicles (EVs) and the only pure-play EV manufacturer with recurring profits.

MSFT data from YCharts.

While these seven components have all been phenomenal long-term investments, their future prospects can be very different, and it all starts with valuation.

We use a common rating tool to rank Magnificent Seven stocks from cheapest to most expensive.

Let’s be honest: analyzing the valuation of a public company can be subjective. Some investors may think it’s expensive, while others may see it as an unbelievable deal. Likewise, fundamental metrics are fluid and constantly changing as companies report operating results and Wall Street analysts react to this data.

Nonetheless, the price-to-earnings ratio (P/E) has stood the test of time as the most basic measure of the value of public companies. However, since Wall Street is forward-looking, it makes most sense to utilize a forward P/E ratio that takes into account the upcoming year’s earnings per share (EPS).

Here’s how the Magnificent Seven ranked from cheapest to most expensive using this common rating tool, based on Wall Street’s consensus estimates as of March 13’s close.

• Alphabet (Class A stock, GOOGL): 17.83 Forward P/E Ratio
• meta platform: 21:56
• apologize: 23.9
• nvidia: 30:43
• microsoft: 31.07
• Amazon: 33.95
• tesla: 41.14

To provide some context, let’s look at the benchmark’s forward P/E ratio. S&P 500 And driving growth Nasdaq 100 They are 21.1 and 31.32 respectively.

Based purely on next year’s earnings potential, Amazon and Tesla appear relatively expensive, while Alphabet and Meta Platform appear cheap. The latter is especially interesting given that Meta has risen more than 5x since the bottom of the bear market in 2022, but remains attractively valued based on consensus EPS estimates for the company.

However, the forward P/E ratio does not tell the most complete story in terms of valuation. While it can be a useful tool for evaluating mature businesses, a much better measure of value exists for the Magnificent Seven, which are typically fast-growing and driven by innovation.

Image source: Getty Images.

This is the smartest way to rank the Magnificent Seven from least expensive to most expensive.

In addition to having a dominant position within their respective industries, the Magnificent Seven share another characteristic: This means that they tend to reinvest a significant portion of their operating cash flow into the business. That is, they are willing to give up maximum profits in the short term to invest in high-growth initiatives that can actually increase growth rates in the coming years.

Rather than relying on forward P/E ratios, analyzing the multiples on future years’ agreed cash flows at which each company trades is a much smarter way to value these dominant companies.

Here’s how Magnificent Seven stocks rank from cheapest to most expensive when examined in relation to next year’s cash flow.

• Alphabet (Class A stock, GOOGL): 12.53 times the consensus cash flow for next year
• Amazon: 12.8
• meta platform: 13.19
• apologize: 21.1
• microsoft: 24.15
• tesla: 27.38
• nvidia: 30.59

On the one hand, Microsoft, Tesla, and especially Nvidia are making it more difficult for growth seekers to find value. Tesla’s operating margins are falling as it cuts prices on production models to control inventory levels. Meanwhile, Nvidia is set to face a laundry list of headwinds, including AI GPU competition from many of its top customers (Magnificent Seven components).

On the other end of the spectrum, Amazon is historically cheap relative to its future cash flows. As AWS grows as a larger percentage of net sales, Amazon could see its cash flow growth easily outpace its annual revenue growth. Meanwhile, Meta Platforms sees future annual cash flows at just 13x, which still leaves a potential discount available.

However, the best deal within the Magnificent Seven is Alphabet, which is also the cheapest component when using the forward P/E ratio.

Alphabet’s primary operating segment continues to be Google. With nearly 92% share of global Internet searches, Google is the logical choice for advertisers looking to target their messages to specific consumers. Typically, this will give Google very strong ad pricing power.

In addition to Alphabet’s advertising division, which is benefiting from a prolonged economic expansion, Google Cloud appears to be a notable strength. After years of operating losses, Google Cloud achieved its first operating profit in 2023.

Cloud services margins are much more robust than advertising margins, and enterprise cloud spending is likely to be in its infancy. Simply put, this segment could be a major source of cash flow growth for Alphabet over the remainder of the decade.

If you’re looking to trade any of the Magnificent Seven stocks, the data shows you won’t have a problem choosing Alphabet.