Buy Magnificent 7 Stocks or Not? A 2024 Review
The buzz about why you should buy Magnificent 7 stocks has been hard to miss this year, with AMZN, AAPL, GOOG, META, MSFT, NVDA, and TSLA grabbing all the headlines. But are these tech giants truly overpriced, or are they the golden tickets investors hope for?
To determine if buying these stocks is a smart move or just a high-stakes gamble, we’ll break down their current valuations and future prospects, especially in light of recent earnings reports like NVDA’s. Let’s see if these Magnificent 7 are worth adding to your portfolio or if they’re just a lot of hype.
Last week, NVDA was the last of the group to report its earnings, so we decided to take a look. Are those seven stocks overpriced, and if so, by how much?
| 2024 P/E | 2025 Forward P/E | 2026 Forward P/E | 2027 Forward P/E | 2028 Forward P/E | 2029 Forward P/E | |
| AMZN | 36.69 | 29.99 | 23.43 | 19.67 | 15.94 | 13.33 |
| AAPL | 34.07 | 30.73 | 27.26 | 21.76 | 18.96 | 16.52 |
| GOOG | 21.82 | 19.16 | 16.69 | 14.25 | 12.08 | 9.56 |
| META | 24.49 | 21.47 | 18.74 | 17.07 | 16.03 | 14.21 |
| MSFT | 35.07 | 31.41 | 27.02 | 23.02 | 20.26 | 18.25 |
| NVDA | 41.33 | 29.56 | 25.13 | 23.09 | 22.61 | 20.24 |
| TSLA | 87.87 | 63.88 | 47.46 | 31.88 | 26.66 | 26.13 |
| S&P500 | 27.02 | 23.29 | 20.08 | 17.31 | 14.92 | 12.86 |
| S&P500 Technology Index | 40.63 | 34.04 | 28.51 | 23.89 | 20.01 | 16.76 |
The forward PE Ratio for the stocks is taken from SeekingAlpha.com. According to them, the data for each year is aggregated from institutional stock analysts that cover those stocks.
The forward PE Ratios for the S&P500 and S&P500 Technology index were extrapolated from State Street Global Advisors, sponsors of the SPY and XLK ETFs. While they do not necessarily provide a breakdown of the forward PE ratio per year, they give the current PE ratio and expected earnings growth for the next 3-5 years. For the S&P500, that was 16% growth per year; for the S&P500 Technology Index, the annual growth rate was estimated at 19,37%.
GOOG: A Hidden Gem Among The Magnificent 7?
First, the obvious observation is that GOOG seems very cheap. GOOG’s PE ratio at present and the forward PE ratio from 2025 to 2029 are lower than that of the S&P500. And it is lower not just by a little bit but consistently 20-25% lower.
So much for all stocks of The Magnificent 7 being expensive. GOOG’s valuation is so attractive that we hold an overweight position in nearly all our portfolios, with some having up to 30% of their market value in the stock.
Meanwhile, META also presents a reasonable valuation, making it a solid investment choice. Yes, strictly speaking, META’s valuation is consistently higher than that of the S&P500, but not by much.
The investment case for META is not as strong as GOOG, but we certainly deem it highly investable.
AAPL and MSFT: Premium Prices for Premium Companies
Second, AAPL and, to a degree, MSFT are indeed on the rich side relative to the S&P500. Consistently more expensive than the broader markets by about 30%. Indeed, this is not cheap, but those are some of the most successful companies that have ever existed.
Indeed, some premium is deserved. Maybe 30% is on the rich side, but we would not call it a dangerous or undeserved premium. Practically speaking, we just try to keep allocations of those two stocks up to 8 % in any of our portfolios (approximately their weight in the S&P500).
AMZN and NVDA: High Valuations with Expiring Premiums
Third, we are going to two expensive stocks—AMZN and NVDA. Those stocks have two or even three times higher valuations than broader markets. However, current analyst expectations call for that premium to disappear within five years.
Yes, there is a danger that those stocks may fail to grow as analysts expect them to. However, those growth expectations do not extend indefinitely. Current valuations are high, but only for the next five years. After that time, those stocks had valuations that were very similar to those of the S&P500.
Practically speaking, we are somewhat uncomfortable with those two stocks as their growth expectations are very high, but both of those companies have been meeting and exceeding expectations consistently. We include those two stocks only in our aggressive stock portfolios, with a cap of 20% each per portfolio.
TSLA: The Outlier with Excessive Premiums
Finally, we are going to TSLA. In any given period, the valuation of TSLA is at least several times higher than that of S&P500. Very unusual for a car company. OK, so maybe TSLA is not a car company, but even if it is a technology company, the premium of valuation relative to the S&P500 Technology Index is quite substantial. In 2029, that premium is expected to be more than 60%… We are not necessarily saying that TSLA is short or that it will not live up to current valuations, only that it seems that those above-market expectations for TSLA extend longer than 5 years. Something that the other Magnificent 7 stocks do not face.
The Bottom Line: to Buy Magnificent 7 Stocks or Not
In summary, The Magnificent 7, as a group, is not dangerously overpriced. Some of them, like GOOG, look exceptionally cheap. Most of them trade at a premium, but that premium is expected to be priced out within five years. One notable exception is TSLA. While most people concentrate on NVDA and its incredible price performance, that price performance is backed up by the company continuously hitting its operational targets. The one stock that worries us out of the group is TSLA. Again, we are not necessarily shorting it, only avoiding it.