From Barron
They’ve gone from the Mag Seven to the Lag Seven.
We’re talking about Apple, Microsoft, Nvidia
, Alphabet
, and Tesla, which contributed more than half of the S&P 500
’s gain of 23% in 2024 as they rose an average of 60%. With the stocks down an average of 15% so far this year, they now account for about 95% of the index’s decline of 6% in 2025.
But don’t write off the market’s former leaders just yet. While their declines conjure up bad memories of the tech bubble’s former giants—Cisco Systems, WorldCom, and AOL among them—the Magnificent Seven aren’t destined to fail or fade into insignificance. They remain too dominant, accounting for a third of the current market value of the S&P 500, and too reasonably priced, with six of the seven trading for 18 to 30 times projected 2025 earnings. (Tesla, at 85 times, is the notable exception.)
The Mag Seven now “trade at their lowest valuation premium relative to the rest of the S&P 500 since 2017,” according to Goldman Sachs strategist David Kostin, “despite consensus earnings expectations that the group will collectively continue to grow [earnings per share] at a faster rate than the S&P 493.”
That spectacular earnings growth, not bubbly sentiment, is what has driven the group’s outperformance over the past seven years, Kostin adds. Nvidia’s earnings are up tenfold since 2018, while Amazon’s have increased fivefold and Alphabet’s have risen fourfold. Rather than any major fundamental issues, the declines are a result in part of selling by hot-money hedge funds and other institutional investors who had piled into the stocks in the past two years, he writes.
There are risks. All seven are exposed to a slowing economy and the impact of a trade war, which could ding profits in 2025. Size also becomes an impediment to growth, though the companies serve large addressable markets. Investors also worry that most are spending more than ever on artificial intelligence—and therefore producing less free cash flow.
Investors can play the entire group with theRoundhill Magnificent Seven exchange-traded fund (ticker: MAGS), which equal-weights the stocks and trades for around $47. But there may be something to be said for being choosy. Alphabet, Amazon, Meta, and Nvidia are the most attractive, even if they might not appeal to classic value investors. Apple and Microsoft are less tempting, while Tesla is a special case, deserving of its own treatment.
Amazon might be the best of the bunch. The stockhas slumped nearly 20% from its February record high to around $194, and is now trading for 25 times Evercore ISI internet analyst Mark Mahaney’s 2026 earnings estimate—a figure based on generally accepted accounting principles, or GAAP, that includes the stock-based compensation that many other tech companies still exclude from their preferred earnings calculations. And Amazon is trading at its lowest price/earnings multiple ever, he notes.
Mahaney likes the setup for Amazon. It recently launched an enhanced version of its digital assistant Alexa, and a satellite internet service similar to Elon Musk’s Starlink called Project Kuiper is due by the end of the year. The company is also investing heavily in—and reaping large cost savings from—automation as it adds robots to its fulfillment centers.
Amazon Web Services is the leading cloud-computing provider; it now has over $100 billion of annual revenue and is probably worth at least $1 trillion. Amazon’s margins are expanding in its North American retail business, which could passWalmart in sales this year. It has an underappreciated, high-margin advertising business that now boasts $70 billion in annualized revenue.
Not everything is perfect. Its capital spending could top $100 billion this year, and growing competition from Walmart both in stores and online poses a challenge. Higher tariffs could depress consumer spending and Amazon’s sales.
Those risks look reflected in Amazon’s stock. It trades at a discount to both Walmart, which fetches 32 times 2025 earnings, and Costco Wholesale, which goes for 50 times, even though Amazon has higher projected profit growth than both. The company has over $100 billion in cash—against about $50 billion in debt—and could begin paying a dividend and repurchasing stock in the next year. Mahaney calls the Outperform-rated stock one of his top picks. His price target is $270, up 39% from Thursday’s close.
If Amazon investors have concerns, Alphabet’s have worries. The stock, now trading around $163, has a valuation of 18 times this year’s earnings, the lowest among the Mag Seven and the only member with a below-market multiple.
Mahaney ticks off the major investor issues: potential disruption to its search business from AI-driven rivals, the ongoing government antitrust effort, and a lack of spending discipline as the company’s capital expenditures are set to rise 40% this year to $75 billion. “There is a lot of fear there,” he says.
Maybe too much fear. On search, Mahaney says Google is holding its own, with his firm’s recent surveys showing that the search engine still commands a nearly 80% share and is particularly strong in commercial search, which matters for advertising. On antitrust, the Trump administration could show more restraint than Biden’s regulatory team.
Alphabet also has kept a better handle on costs than investors appreciate. Billionaire investor Bill Ackman recently noted that Alphabet’s operating margins rose four percentage points in 2024 and that the company’s new chief financial officer,Anat Ashkenazi, “is committed to accelerating efficiency initiatives.”
Investors also get a valuable tech conglomerate beyond search. Alphabet’s businesses include YouTube; a cloud-computing business that does $50 billion in sales annually; the Android mobile operating system; and Waymo, one of two leaders in autonomous driving along with Tesla.
Alphabet has two classes of public stock outstanding—voting (GOOGL) and nonvoting (GOOG). Consider the voting stock, which now trades at a 1% discount its nonvoting shares.
Meta might have the fewest warts among the Mag Seven. Over the past three years, Mark Zuckerberg has gone from being a near-pariah toone of the most indispensable tech CEOs, having maneuvered Meta to the forefront of AI, streamlined expenses, and significantly boosted earnings, while overseeing a tripling in the stock price.
The stock had a 20-day win streak that began in late January before joining the Big Tech slump. Shares have dropped nearly 20% from a record $750 to around $600, and now trade for about 23 times projected 2025 earnings of $25 a share.
Still, Meta is the only Mag Seven stock in the black this year and arguably has the best near-term financial outlook, as the company uses AI to enhance the customer experience and better target advertising.
Mahaney sees a lot to like, including 40% operating margins against 32% for Alphabet. Then there are monetization opportunities in relatively untapped Meta products like WhatsApp, Threads, and Facebook Marketplace.
Nit-pickers might point to the fact that Meta is planning on spending $65 billion this year, up 75% from 2024, while revenue growth could slow to 10% in 2025 from 18% last year. In the fourth quarter, the company elected not to buy back stock for the first time in about eight years—a sign Zuckerberg didn’t think the shares were cheap following its run-up.
Spending concerns could be alleviated if Zuckerberg decides to cut Meta’s Reality Labs, the company’s metaverse business, which lost almost $18 billion, or about $6 a share, last year. The stock no longer looks overvalued after its drop. Mahaney has an Outperform rating and $725 price target on the shares, up 23% from a recent $590.
Perhaps no stock’s fall from grace has been more surprising than Nvidia’s. The AI chip maker has slumped to $115 from a high of $150, a 23% decline, and now trades for about 25 times 2025 earnings. Growth concerns, as well as tariffs and regulatory risks, have caused the drop, which Bernstein analyst Stacy Rasgon recently called “a little stunning, especially at the start of a product cycle,” a reference to Nvidia’s cutting-edge Blackwell chips.
Investors should leave those worries behind.Barron’s tech columnist and Nvidia expert Tae Kim recently wrote that Nvidia “has strong quarters ahead, given the successful launch of Blackwell and the growing demand for AI driven by innovations such as agents, reasoning capabilities, and multimodal models that can process images, videos, and audio.”
Nvidia’s P/E ratio is also near a 10-year low. “[Investors] have historically done well to buy the stock at 25x or lower,” Rasgon writes. “[Worries] that the AI trade is ‘over’ seem a little premature to us.” He has an Outperform rating and $185 price target on the stock, up 60% from Thursday’s close.
Apple has been hit hard lately, falling about 10% in the past week, but even after the drop, it may be one of the least attractive stocks in the group.
While the company has an enviable ecosystem that fuels a valuable and growing services business with over $100 billion in sales, its revenue growth remains sluggish: It is projected to grow sales at less than 5% for the current fiscal year ending in September. And the stock, at around $210 and trading for almost 30 times estimated earnings, doesn’t look cheap.
Apple has had unexpected delays rolling out an enhanced version of Siri, its digital assistant, giving iPhone users one less reason to upgradetheir phones this year and highlighting what critics have called a lack of innovation at the tech giant.
Apple also has a China problem. MoffettNathanson analyst Craig Moffett notes that revenue fell 11% during the latest quarter in its second-largest market. Its vaunted ecosystem is no match for Tencent Holdings’ dominant WeChat, which combines online communications, social media, and payments. Without China, there likely won’t be a long-awaited iPhone supercycle, Moffett says. He has a Sell rating and $184 price target on the stock, down 12% from a recent $210.
Microsoft, down 8.8% over the past 12 months, has been the worst performer among the seven stocks over the past year. Investors reacted negatively to decelerating fourth-quarter growth in its Azure cloud business outside of AI. While Microsoft has better growth prospects than Apple—earnings are projected to rise 11% in the current fiscal year ending in June and 14% the following year—the stock looks fully priced at 29 times current-year earnings.
