Ranking: Top Mag7 Stocks Today

The Mag 7 has been a phenomenal way to invest in the market over the past 5 10 years, but where do we sit today? What which one of those companies is most attractive to investors and which one is least attractive? John Quast and I are going to rank all seven of the Mag 7 stocks going 7 to 1. You ready, John? >> Uh yeah, let's do this. >> All right. I want to know your number seven stock in the Mag 7 first. What do you got? >> This was actually harder than I anticipated, but I'm going to go with Microsoft here as my least favorite of the Mag 7. Did I surprise you with that? >> That did surprise me, yes. >> I might be holding a grudge here. The The last time I used a Microsoft product, I still had to save everything manually. I was working for about 8 hours on a really important project, got up for a drink, came back, and the computer had decided to restart without saving my work. And so, I am holding a grudge over Microsoft to this day. Uh in all seriousness, I I just I can't get too excited about Microsoft products. I think that there is confusion over its partnership with OpenAI and and what it's doing internally with AI, and I I think it just all gets kind of muddled there. I don't know what the long-term growth aspect is. I I do like the cloud business, for sure, but overall as I as I look at these Mag 7 businesses, and they're all incredible businesses, I think that we should be clear. You don't get to be part of the Mag 7 unless you're doing some really important interesting things. And so, in light of the other six, Microsoft is down at the bottom for me. >> So, interesting that you had Microsoft because it it does strike me as one of those companies that you want to think about the valuation. Like, I'd love to buy Microsoft at 15 times earnings, for example. Uh and so, it's trading not quite double that price. Uh but, it it is one that has shown, even over the past 20 years, that it just has this staying power and this stickiness, especially in corporate America, right? Like, I think most consumers have more consumers, at least, uh over the past 20 years have moved to Apple devices in particular. But, if you're in an enterprise, you're probably still using a PC uh because they just have the software that makes businesses run. And it's not well-designed software, but it just works and it's backwards compatible and the the system that they were built on 20 years ago are still maintained. So, interesting that you had them bottom. I had Microsoft number four on my list. So, right in the middle. Uh so, I much higher. I just think the stickiness of that business is is one of those things that I just I just don't want to overlook. And I think there might be a few more pressures in some of these other businesses. So, let me let me go with my number seven. This may not surprise you. That's Tesla. I don't know Tesla has a few challenges today. One, the auto business is not going particularly well. Not just in the US, but also in China. There's a ton of competition in China. They may actually, if they want to merge with SpaceX, they may need to actually spin off that China business. China makes about half of their vehicles. So, I don't I don't know exactly what that looks like in the future. This was supposed to be a company that was a an energy storage story. We've seen that kind of falter. You know, there was very very clear things that were going to happen with that that I, you know, I covered uh a number of times because they were the first to get a bunch of the subsidies that were put in place during the Biden administration. Those were not going to last forever. They were also uh the kind of thing that was going to bring more competition. So, you've seen those margins come down on the energy side. Margins are now pretty industry standard on the automotive side. They're not getting the same tailwinds from things like uh regulatory credits that they once were. I just don't know where this company goes in the future and yet it still trades for a massive premium pre-premium to its competitors. You look at a stock like GM, that's going to be trading for five, six, seven times earnings. As we're recording today, Tesla is trading for 300 times trailing earnings and 165 times forward earnings. They're also increasing their CapEx. They're apparently getting into making chips. FSD was supposed to be something that was going to be fully autonomous by now. They launched the robo-taxi business in Austin over a year ago at this point. They are still have relatively few vehicles that the growth has actually slowed recently. Yes, they've moved into more cities, but it doesn't seem like they're any closer to actually pulling the safety driver. And at the same time, there are a dozen companies or more who are at that point, who are operating autonomous vehicles, who are starting to pull those safety drivers. I think 2027 is going to be a real inflection for that. And Tesla's kind of fallen behind in all of these cases. So, when you get to the business, the fundamental operations, and the valuation, I think this is this is the last of these stocks that I want to own. >> Well, Tesla is only slightly higher on my list at number six. And so, I I think that for me, Elon Musk is the difference maker here and what bumped it ahead of Microsoft for me because say what you will on timelines and things like that and just these bombastic claims of what they're going to be able to do, there is still an an amazing inspiring ability that he has and there is an ability to kind of create the future that he wants to see. And I I don't want to bet against that necessarily. And you look at some of the things that it does have some of the things that I am actually, if we're talking about what our favorite are, I think we need to clarify what we're talking about here. Maybe we're talking about 5 years. I think if we're talking about 10 years, that's that's where I put Tesla because some of these things are going to need to take that long. I'm impressed with how quickly the Optimus I I follow Boston Dynamics for years and how it long it took for it to create its robots that, you know, I just mean watch these iterative cycles that Boston Dynamics went through just for its products to be able to, you know, hold something or to walk or to have a battery pack or whatever. And how quickly Tesla has gotten its Optimus to where it is right now. It's not where it needs to be, but that trajectory is very promising. I don't like it for the consumer aspect. I think that it has promise in industrial applications. And so, what is that worth? I'm not sure. Over the next 10 years, what is that worth? I I think it could be something very meaningful. All of the things that you pointed out though, acknowledged. >> Yeah, and the only thing I would say with the humanoid robot piece is that I think it's very different to go from, "Hey, we got a really cool looking car and now it runs on electricity versus running on gasoline." I mean, that was that was a relatively small leap for people to make in their minds. Having a humanoid even in a factory is a completely different thing. And on top of that, there are tons of companies working on this. You know, Figure is one that I follow in the US. There's a bunch of Chinese companies as well. You know, Menti is owned by Mobileye. So, there's a ton of competition coming into this space that we don't even know that if there's a real market for it. So, okay. So, that's the bottom two for you. What is number five on your list? >> Number five is Apple. I I really wanted to put this higher because I really do like Apple when it comes to how they have played AI. I really do. They did not go into the model game, the Cap X game where I think there is a risk of commoditization. What they've done is, "Okay, you make it, we'll implement it or we'll integrate it into our products." But, the other thing that I think is going to be a big trend and this is a core investing belief of mine is that we're going to see a shift from so much cloud-based AI and we're going to see a move towards more localized AI. Which means that I'm running my AI on my hardware. Maybe I'm running an open model. Maybe I'm I'm paying for something but >> that device and the chip and the memory and all that stuff that I'm using. >> Yeah. And so, you know, you can you can do that right now as a regular person. You can just buy an a Mac mini and you can have that you can buy a Mac Studio and have a little bit more powerful one. You can network these things together. I think that your hospitals, your colleges, your government agencies, many things are going to want to have localized AI and Apple products are really optimized for that both from a user user-friendliness aspect, but also the capability of how its hardware is constructed. It's It's not how a lot of hardware is constructed. So, it is kind of it is faster. It There are energy uh efficiencies that it has. So, really I think it's set up nicely. Valuation is what concerns me. >> Yeah, that the valuation piece is something I thought about with Apple. Apple's actually my number two. So, we're we're kind of on different ends uh with Apple in particular. And the only reason that I'm that high I I I don't disagree with a lot of the kind of negatives that for them. I you know, what is coming next you don't know. Uh I I don't think that they're in a particularly innovative phase in their cycle, you know, bringing the new CEO John Ternus I think is probably going to be helpful because Tim Cook was just not a He was not a visionary CEO. He was an operational CEO. That was his job after Steve Jobs. So, you know, maybe this brings a little bit more excitement into their product mix. They're maybe also going to be pushed by a company like OpenAI who's, you know, taking a lot of their talent. Uh Jony Ive is is obviously there now. But the other thing that I keep thinking about with Apple is, as you mentioned, air going I I I do not see a device that is going to replace the phone or the PC for that matter. And so more likely than not 5 10 years from now, we are still going to be buying these devices. They're probably going to be more expensive. They're probably, you know, going to have more memory and better chips and all those kinds of things. And that means that Apple's still going to exist. They're still going to be, you know, printing money, making a lot of these products. And that sort of stability in this world, you know, that I'm thinking about some of the the risks. We'll get to, you know, a couple of these companies in just a second. But I'm seeing more downside risk with some of these other companies that I am with Apple who really the biggest risk that I see is that valuation, you know, 34 times earnings forward earnings as we're recording right now. That's expensive, but they do deserve a high multiple. >> What is the growth rate going to be? I think that really does play into it and I'm just not sure. So for me, that's why it lands lower in the pack. But keep in mind, I mean, we're comparing it to some world-class companies. So we're not saying Apple's bad. >> Yeah. All right. I want to go with my number six. So we haven't even gotten to my number six and we started with the with the bottom for you. Uh number six for me is Meta. And here's here's the reason. I I know that Meta, they have they have a phenomenal core business, but I think the problem that I have with their business right now is one, their founder and their CEO doesn't really care about the thing that drives the business, which is advertising. That's that's never been the thing that he has focused a lot on. Sheryl Sandberg really made this company operationally what we know it as today. And he also has a propensity to go after these big grand visions that don't go anywhere. So we saw that with the metaverse, but there's there's other examples where, you know, Zuckerberg is chasing growth or chasing being a platform. They're called Meta Platforms. They don't have any platforms. There is no platforms in that business. This is an app company. this is an advertising company. And the final thing is that you you know, this ties into that, but artificial intelligence, what is their strategy? Are they a model company? Are they a company that's develop thing developing things for internal use only? Are they a neo cloud? Are they going to have new apps? I just don't have a good answer for them. Every one of these other companies, you know, Microsoft, you could criticize their strategy, but I think you could pretty well articulate their strategy and why they you know, why they're proponents of open source or open weight models, why Nvidia is the same, why Alphabet is well positioned. I have a really hard time articulating how Meta is going to be a leader in artificial intelligence in the future or why they need to be. Why are they at the point where they need to buy so many GPUs that they can rent them out and build a neo cloud business? It's just it it isn't something they need to do. >> Well, uh the pushback that I would have to that is its latest AI that is coming out here, the Muse. I think that this is going to be disruptive. I think you look at what it can do as far as the the coding capabilities and you look at the cost to do it. That seems disruptive to me and you think about the businesses that are being built with Open AI and Anthropic. I mean, these are pushing trillion-dollar valuations. If it can disrupt those based on and it can fund it with these this incredible advertising business that it has, world-class and still growing at a good rate even without the focus. We're talking about disrupting trillion-dollar companies. And so I I think that that is could be very big and I I think that the latest version is going to surprise us 6 months from now. But this gets to and and maybe this will tie into some of these other questions that I have, but you're right that they're potentially disrupting the value that is being created in in some of these other businesses. But this is the challenge that I have with so many of these AI stories because they're all going after the same thing. If you think about these seven companies in particular and the world of technology that we had, let's say, pre-ChatGPT moment, they kind of all did something different. And they were complementary, and there was no real reason for, you know, Apple to fight with Alphabet or Amazon. They were all making tons of money. They had their silo, but you know, they're effectively monopolies or or aggregators in their specific spaces. And now they're all suddenly running after artificial intelligence. And they're all doing the exact same thing. And you know, the where does that value lie with any of these companies in particular if especially if you, you know, Alphabet we'll talk about it in a little bit, but they own the distribution source for so many of these AI tools, whether you're talking about YouTube or Gemini or Google Search. Meta owns a distribution source, but it's an ad distribution source, you know, it's a it's a social media network. So, they may be able to monetize that much better, but is that worth spending several hundred billion dollars in CapEx? That's just where I have so many questions. All right, let's get to we've gone to through I think the bottom three for you. >> Yeah. >> gone through the bottom three for me. So I'm >> need your number five. >> We need my number five, which is Nvidia. >> Ooh. >> And the reason that it's Nvidia is because of all these things that we're talking about with everybody chasing artificial intelligence and everybody uh spending to kind of go after the same thing. And you think about the incentives of some of the companies that are spending the money. So, let's just talk about the companies in this ecosystem of companies, these seven companies. Alphabet spending over $200 billion in CapEx in 2026. They're building their own chips. Apple not playing in the game. Amazon spending over $200 billion in CapEx. They're building their own chips. Microsoft I I forget what their number is. It's nearly $200 billion if my memory is correct. They're not quite as much in the chip game, but they're happy to buy chips from anybody. Meta, same thing. They're buying up They're one of the biggest spenders. Uh they're also trying to build their own chips, not quite as successful as Amazon or or Alphabet. Tesla, also not only building chips, building a fab that is that they're, you know, they continue to Elon Musk tweeted about it today. These customers are the biggest customers for Nvidia. Something like over 60% of their revenue comes from these hyperscalers who have no interest in paying Jensen Huang an 85% margin on their chips. So, I just think that's a that that's something that is hard to say today when you look at Nvidia's numbers and how much they're growing and where their margins are at, but the question for investors today is not where are their margins going to be this quarter, it's where are their margins going to be in 2029, in 2030. Where are their margins going to be if, heaven forbid, AI spending growth slows and we start to flatline that spending or even maybe even just decrease it. That's where I got so many questions. I think there's much more competition in this space, you know, you can't you can't be bullish on AMD and Google's TPUs and Nvidia and Intel, you know, eventually the margins for all these start companies start to come down. >> For me, Nvidia was only slightly higher at my number four for the same reason that you mentioned. I do love the business. I really do. I I'm really compelled by the growth and even the valuation here. But, as you mentioned that I mean that valuation is based on the the trailing 12 months. It's not based on a year from now, two years from now, three years from now. CEO Jensen Huang making a very interesting statement here just recently talking about how the GPUs we have a shortage of GPUs. We are compute constrained. And so, but he coming out and saying that, you know, we're not always going to be GPU shortage. We're trying to convince Taiwan semi and and our partners to to make more for us and and as soon as we can convince them, you know, we're not always going to be GPU constrained. That's an interesting comment because the net profit margin right now is 63%. That exists precisely because you have a GPU shortage and therefore the prices go up, your profits go up. If we have a parity of supply and demand, I don't think that we have that and heaven forbid there be more GPUs than there is demand. Now we're going the opposite way with margins and so maybe that valuation is a little bit deceptive here, but I don't hate Nvidia. It's my number four, but yeah, the the long-term outlook for those margins, they persisted much longer than what I thought possible, but just very interesting to think about. >> I want to put some numbers to the some of the things you just said. So the price earnings multiple on a forward basis as of recording is about 22 and I'll put the chart up here, but their operating margins today are 64%. Historically, and this chart goes all the way back to 2005, their operating margins are somewhere in the teens to low 20s. You know, you could go back to 2018, 2019. By the way, that was driven by Bitcoin and buying for Bitcoin and then eventually Ethereum. Uh, then the margins went up to the 30% range. But periodically those operating margins also go negative. Now, I'm not predicting that their operating margins are going to go negative, but to think that a 64% operating margin is sustainable and then you should look at a forward price earnings multiple of 22 and see, "Oh my gosh, this is a great value." I think it's a little bit crazy because it's very possible that that 64% operating margin goes down to 30% and then suddenly you're buying a stock that's more like 40 or 50 times earning. And if by the way, that margin is going down to 30%, you're probably not having a very strong growth rate, maybe even negative growth rate, which again, Nvidia periodically goes through. So, these are all things that I think we need to think about is are you buying at the peak? You know, it it has been a little bit wild to look back on Nvidia's stock price, and it has not grown as much as you might have think given up the amount of attention that they've had over the past few years. You know, shares are up a little bit over the past couple couple of years. They performed nicely. But, it has not followed the the rapid growth in revenue, and that's because a lot of the growth is already priced in. So, what happens when these things start to turn? What happens when, you know, Alphabet reduces their order book for Nvidia chips? Uh the fact that they're funding so many of these neo clouds, I think should be a worry for investors because what it what Jensen Huang is saying is I don't want to be beholden to these big hyperscalers who don't want to be my biggest customer. They want to be their own biggest customer and use their own chips. Uh that's that's I think a tougher position long term to be than than a lot of investors would like to think. >> And, you know, if it was cut in half that operating margin from 60 to 30, I mean, it would still be a world-class business. If you can find a company that has 30% operating margins, that is high quality every single time. And and yet that does cut the profit in half if that was to happen. So, I I just that's what we're saying here. >> All right. Have we gone through your bot top are we at the top three now? >> Well, top three, yeah. Top three for me. >> All right. What do you got for three? >> Number three is probably higher for you. Number three for me is Alphabet. >> Yeah. >> I I >> I debated this one a lot, yes. >> Alphabet, what I mean, what's not to like with Alphabet? It's the advertising juggernaut. It has the distribution for its AI models, and even its AI products are are pretty good. It is getting a lot of traction there. It's cloud business is on fire. It and the valuation is quite reasonable here. A lot to like with Alphabet. >> Yeah, the valuation I think, you know, it's obviously come up, uh 27 times earnings on a forward basis as we're recording today. That the numbers if you look at a trailing basis include the paper gains that they have from Anthropic and SpaceX. So, just kind of keep that in mind. If you're looking at price earnings multiples, that does include what's called non-operating profit. Their businesses are looking pretty good. Here's what I'm starting to think about or worry about a little bit is they are now free cash flow negative. Okay? As of even before their earnings report, analysts did not expect them to go free cash flow negative in 2026 or in the future, by the way. So, they did not they expected all of this CapEx to be funded from operations. So, that is not currently happening. The other thing is they're losing more and more of their very high-level AI staff. Maybe that's good because you bring a little bit of young blood in, you bring some new ideas, maybe somebody that's hungry to make an impact on the world. Maybe it's bad because it's showing that, you know what, you're not the leader. They can see what's coming in the future and they go, "Ah, you know what, I'd rather I'd rather go start my own company." So, Jeff Dean and a number of other associates announced yesterday as we're recording that they're leaving to to start a new company. There is I think concerns there. Now, on the positive side, maybe you just get to the point where Alphabet is no longer kind of the Alphabet that we grew up with, you know, of 15, 20 years ago where, "Oh my gosh, they came out with this new thing." Remember when Gmail came out and you could get a new Gmail address? Maybe this is just the Microsoft of the next decade or two where nobody really likes Microsoft, but you just keep using Microsoft. You know, could be the same. I don't really like Chrome. I don't really like search, but I just keep using it because I'm really used to it. You know, you got Waymo, you've got all kinds of assets under there, you know, all the all the investments they've made, like I said, in Anthropic. They own around 10% of the company or so. I I had it number one, but almost by default Uh because it was it is sort of the one that I think that I know if we do see some pressure on AI, I think, you know, Tesla and Meta and then after going to feel it a little bit more, whereas Alphabet has that distribution. So, that's what that's the only reason that I had them a little higher. >> So, what's your number three? >> My number three is Amazon. And I think Amazon is is sitting in a pretty good position because they know who they are. You know, I think, you know, Andy Jassy hasn't been the visionary CEO that that uh Jeff Bezos was. It's not really his job, right? Like his job is to be Tim Cook to to Steve Jobs. I think would would be the argument. They are just knocking it out of the park with their with their retail business and the logistics business. I I can't imagine anybody is going to do that much better than them. They continue to, you know, push forward with, you know, 1-hour shipping and and making things easier to order. So, that is a solid business there. The other thing on the AWS side is AWS is accelerating and I think that they know this is eventually going to be a commodity business. And that's what they do really well. That's what I would be scared of if I was Nvidia, for example, is someone's just going to make they're going to make cheap sexy chips that aren't going to have the super high performance, but people are just going to be like, "Okay, I can get my tokens for 30% less on AWS than I can, you know, renting an Nvidia chip from Coreweave, for example. I'm going to just go to AWS." And that's what they've been doing with AWS for what, more than two decades at this point? And that's what I think they will continue to do. So, as this business commoditizes, monetizes, and it will eventually. Maybe we aren't there today, but it will eventually. I think they're one of the better positions positioned companies to benefit. >> Did you have Amazon thoughts? >> Well, we're just flip-flopping here our threes and ones because my three was your one, but your three is my one. Amazon at the top of my rankings here. I just absolutely love Amazon. I mean, the retail business is there any threat whatsoever to that component? I mean, just an absolute juggernaut. But, you look at you mentioned Andy Jassy. I think it's interesting. I don't know if he's supposed to be Tim Cook. He's the guy who was in charge of AWS. Now, he's in charge of the whole company and look how AWS is performing, putting up its best numbers ever and they're really saying our long-term opportunity here with Amazon Web Services may actually be way bigger than we ever thought possible. That's a very interesting statement to make and it is hitting a real inflection point. I think you point out all the right reasons to like Amazon. Trading it only 22 times forward earnings is just absolutely phenomenal when you look at what this company has achieved long-term and what it still has right in front of it. >> Yeah. Yeah. So, hopefully that's helpful in in understanding how we're thinking about the Mag 7. Uh, I will put a list up here with all of our stocks and how we rank them. I I think there is a little bit of divergence today because it's not obvious which one of these is is the best play and a lot of it has to do with what's going to go on with artificial intelligence in the future. Where are those use cases going to be and where is the value going to be? Uh, cuz some of if depending on how it plays out, some of these stocks could be expensive and some could be pretty cheap. Let us know how you rank the Mag 7 in the comments section below. Don't forget to subscribe to the Motley Fool's channel here on YouTube. Thanks for watching everybody. See you here next time.