With all of the ‘Magnificent 7’ stocks, save for the notable exception of Tesla (TSLA), trading near their all-time highs, applying the term “cheap” to any of them might sound like a contradiction in terms. Since the constituents of the elite group are quality names in their own right, they are very rarely available at mouth-watering discounts.
When such discounts occur – most recently in 2022 – buying them cheap has made perfect sense. Warren Buffett’s famous “buy the fear” analogy has generally worked wonders in quality tech stocks even as the “Oracle of Omaha” himself has generally shied away from the sector, finding it to be outside his circle of competence.
In this article, we’ll look at the current valuations of Magnificent 7 stocks to find out which is the cheapest, beginning with their 2024 price action.
Nvidia Is the Best-Performing Magnificent 7 Stock in 2024
With a YTD rise of 142%, Nvidia (NVDA) is the best-performing Magnificent 7 stock in 2024. Meta Platforms (META) and Alphabet (GOOG) are next on the list, albeit distantly, with YTD gains of 37.7% and 24.7%, respectively. Amazon (AMZN) and Microsoft (MSFT) are up 19.3% and 12.3%, respectively, over the period. Apple (AAPL) is barely in the green, while Tesla is the worst performer with a YTD loss of 29.3%.
Which Magnificent 7 Stock Has the Lowest PE Multiple?
Price-to-earnings (PE) multiple is among the most widely used valuation metrics. Alphabet has the lowest forward PE multiple of 22.56x, with Meta Platforms a close second at 22.13x.
Apple comes third on the list, with a forward PE multiple of 29.1x, followed by Microsoft at 35.23x.
Amazon’s forward PE multiple is 38x, while Nvidia trades at 47x.
Tesla has the highest forward PE multiple, at 95x, among Magnificent 7 stocks. The Elon Musk-run company’s profits have tanked amid the price war that it initiated, and its operating profit margins fell to 5.5% in Q1. Due to the falling profits, the stock’s PE multiples have gone up.
Currently, Amazon and Tesla trade at a significant discount to their average valuation multiples over the last 3 years. Nvidia’s valuation multiples are also slightly below the 3-year average, while GOOG trades mostly in line with historical multiples.
Conversely, Meta Platforms, Apple, and Microsoft all trade at a premium to their three-year average multiples.
Valuations of Magnificent 7 Stocks
Along with the PE multiple, it would be prudent to look at the price/earnings-to-growth (PEG) multiple, as it normalizes the multiple for the expected growth in earnings.
Looking at the PEG ratio, Meta has the lowest multiple of 1.21x. Nvidia and Amazon have a PEG ratio of 1.28x each, while Alphabet is a close third with 1.29x.
Microsoft and Apple have a PEG multiple of 2.19x and 2.33x, respectively, while Tesla has the highest multiple of 4.39x.
Which is the Cheapest Magnificent 7 Stock?
While the Magnificent 7 sounds like a cohesive group, there are different dynamics at work for each, which is reflected in their valuation multiples. Also, all of the constituents are AI plays, albeit to varying extents. While Nvidia is the flagbearer of the AI trade, names like Apple have yet to garner “AI respect.”
That said, looking at the valuation metrics as well as the expected growth over the medium to long term, I find Amazon to be among the cheapest Big Tech companies. It is a play on several industries, including ecommerce, cloud, digital advertisement, streaming, and AI, which makes it a much more diversified business.
Why AMZN Stock Looks Relatively Cheap
The growth in Amazon’s e-commerce and enterprise-focused Amazon Web Services (AWS) business has stabilized from the troughs. It has several growth drivers, like Amazon Business, which is its business-to-business (B2B) platform, its pharmacy business, and the still fast-growing ad business. Generative AI initiatives should also help drive both Amazon’s top line and bottom line - and no wonder the company has opened up its coffers for AI capex.
Amazon has tightened its belt (pretty much like all Big Tech companies), and these efforts are quite visible in its earnings. Its trailing 12-month free cash flows adjusted for equipment lease finance were $48.8 billion at the end of Q1, which looks quite strong.
Notably, while Amazon’s PE multiple might appear elevated compared to other Magnificent 7 stocks, it has the second lowest price-to-free cash flow multiple, which is only marginally higher than that of Meta.
Overall, while Nvidia continues to outperform its Big Tech peers hands-down, I believe that Amazon stock looks like a relatively cheap name to buy, especially for someone scouting for value in these markets.
On the date of publication, Mohit Oberoi had a position in: AAPL , AMZN , NVDA , META , GOOG , MSFT , TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
