The aptly named “Magnificent Seven” is a bunch of (mostly) technology corporations which have generally delivered above-average returns, especially over the past decade. Here is every member of this clique: Alphabet, Amazon, Apple (NASDAQ: AAPL), Meta Platforms, Microsoft, Nvidia, and Tesla. Though all have been admirable in delivering outsize returns, considered considered one of them, Nvidia, is in a category of its own.
Not considered one of the opposite Magnificent Seven members even get near Nvidia’s performance to date 10 years. Yet, I still wouldn’t spend money on this company.
Heed advice from Warren Buffett
When shares of corporations rise as much as Nvidia’s have, considered considered one of the first problems investors tend to think about is valuation. It’s often the case that these corporations’ future success is baked into their stock prices. Their shares will drop within the event that they fail to live as much because the market’s lofty expectations. That usually is the case with Nvidia, but that shouldn’t be my rationale for staying away.
There may be a simple and easy reason I might not spend money on Nvidia stock: My knowledge of the company’s business is practically nonexistent. Nvidia is the leading player in manufacturing graphic processing units, critical electronic device components. This appears like a superb business model, but that’s with reference to the extent of my expertise, or lack thereof, on this area.
So, while Nvidia looks like a terrific company from an outsider’s perspective, considering just how successful it has been over the past decade, I’m in no mood to take a position. Warren Buffett, the world’s best investor, once said: “Investment should be rational; within the event you can not understand it, don’t do it.”
There isn’t any shortage of options
For what it’s value, I may also avoid investing in Tesla for an analogous reason. Am I missing out on some massive gains consequently? It’s hard to say. If I made it a habit to take a position in businesses I do know nothing about, I’d end up with some excellent stocks which have performed splendidly, like Nvidia and Tesla. But this approach would almost definitely end in some terrible investments, too.
It’s unclear whether the net effect on my overall returns might be positive. Thankfully, the rest of the Magnificent Seven stocks are all businesses I understand reasonably well. All of them, I think, are value serious consideration. Let’s pick Apple for example. Though not as impressive as Nvidia’s over the past decade, Apple’s returns have also been excellent.
Further, the company has strong growth prospects. The iPhone shouldn’t be any longer the expansion driver it was, but underestimating Apple’s progressive capabilities might be a mistake. In any case, the company didn’t create cellphones — it just made higher versions of them and made a fortune in the tactic.
Apple’s habit of constructing a greater mousetrap is well established. It now goals to do the an identical inside generative artificial intelligence. Apple is trailing a number of of its peers on this area, but that has never stopped the company. Then, there could also be Apple’s services segment, with an installed base of greater than 2 billion energetic devices. The company has enough flexibility to monetize its user base in various ways.
The sky is the limit for Apple despite its recent slowing top-line growth. In my view, the company’s shares still seem like a buy. I’d say the an identical about Alphabet, Amazon, Meta Platforms, and Microsoft. Here’s the lesson for investors: Missing out on some potentially amazing corporations due to a lack of understanding regarding how they grow to be profitable just isn’t the highest of the world.
There’ll on a regular basis be other exciting stocks within the marketplace whose businesses are far more comprehensible to each investor.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Prosper Junior Bakiny has positions in Amazon and Meta Platforms. The Motley Idiot has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Idiot recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
Nvidia Is the Best-Performing “Magnificent Seven” Stock: Here’s Why I Wouldn’t Buy was originally published by The Motley Idiot