2 "Magnificent Seven" Stocks to Buy on the Dip

Buying shares of industry leaders that are drowning in cash is a simple but effective long-term investment strategy. Winners tend to keep on winning, and with that in mind, investors might want to consider using the market sell-off to add a few "Magnificent Seven" stocks to their portfolio.

These are competitively strong businesses that are well positioned to benefit from the adoption of artificial intelligence (AI). They are also generating enormous free cash flow while investing in the future. Here are two I'd consider buying now for the long term.

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1. Nvidia

The future of computing is rooted in AI. However, before anyone can use a chatbot, self-driving car, or any number of things powered by AI, there has to be an investment in advanced chips that assist in building the most advanced AI models. This opportunity could be worth multiples of Nvidia's (NASDAQ: NVDA) annual revenue within the next decade.

Demand for Nvidia's leading graphics processing units (GPUs) increased its revenue by 114% last year to $130 billion. That's enough for it to control a high percentage of the AI chip market. Nvidia intends to stay ahead of the competition with breakneck innovation.

At its recent Global Technology Conference, Nvidia revealed that its top four cloud computing customers have ordered 3.6 million Blackwell GPUs, which indicates booming demand. This is up from 1.3 million orders for its previous-generation Hopper GPUs in calendar 2024.

Nvidia has a pipeline of new chip development to meet long-term growth. Its next-generation Vera Rubin AI chips, scheduled for release within the next few years, will increase computing power exponentially. Nvidia generated a whopping $60 billion in free cash flow last year, and it's clearly putting that cash to work to fuel its innovation engine for years to come.

Dell-Oro Group forecasts annual data center spending to hit $1 trillion by 2029. Nvidia CEO Jensen Huang believes it will gain a large share of that spending, which implies significant growth over its trailing-12-month revenue.

The stock is down 23% off its recent highs, which is a good opportunity to start a position. On a price-to-earnings (P/E) basis, Nvidia stock hasn't traded lower than 36 times earnings over the last five years. It currently trades at a 40 P/E, which seems fair enough considering the massive opportunity for Nvidia in the coming years.

2. Alphabet (Google)

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has delivered market-beating returns for investors over the last decade, but the company's AI investments should continue to drive growth in search advertising and cloud services. Alphabet just announced a $32 billion all-cash deal for cloud security leader Wiz. The deal spotlights the enormous cash reserves the company has to make investments that improve its growth prospects.

While the deal still has to meet regulatory approval, it could help Google Cloud narrow the gap with cloud leaders Microsoft and Amazon. Google Cloud is ranked third in the cloud market, but it's growing rapidly, with revenue up 30% year over year last year.

Google Cloud revenue grew three times faster than its advertising revenue in 2024, signaling the growing importance of cloud computing to Alphabet's business. There's still a tremendous opportunity for it to leverage its AI technology to drive demand. For example, Google could integrate Gemini AI with Wiz to bring automated security features to cloud customers, potentially leading to market share gains against the leaders. The total cloud market is worth $330 billion, according to Synergy Research, and Google Cloud's revenue amounted to $43 billion last year.

Alphabet is able to afford this all-cash deal because of its lucrative digital advertising business, which is how it monetizes services like Google Search and YouTube. It ended 2024 with $85 billion in net cash sitting in the bank and $72 billion in free cash flow.

The stock is down 20% from its recent peak, bringing its forward P/E to 18. With analysts expecting the company's earnings to grow at an annualized rate of 16%, investors could double their money in five years.

Should you invest $1,000 in Nvidia right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.