The Cheapest "Magnificent Seven" Stock to Buy Before It Vaults 26% Higher, According to 1 Wall Street Analyst

Source The Motley Fool

The Magnificent Seven stocks had an outsized influence on the broader market in 2024, with investors piling into these high-flying artificial intelligence-influenced stocks. Their influence has swelled and these seven stocks now represent about one-third of the overall value of the broader benchmark S&P 500. That meant they had a big role in maintaining the bull market now well underway.

However, as Treasury yields have risen to start 2025, some investors have begun debating whether the bull market can last. They wonder if a correction led by a sell-off in the Magnificent Seven is only a matter of time.

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It's always tough to predict what will happen in the near term with the market, but many analysts are still bullish on the Magnificent Seven names and think this market exuberance still has justification. In particular, Wall Street analysts seem optimistic about the tech giant Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), now the cheapest Magnificent Seven stock. One thinks its stock price could vault 26% over the next year or so to $240. Here's why.

Overhang from DOJ lawsuit

Alphabet stock underperformed its peers in 2024 partly due to concerns about the U.S. Department of Justice's (DOJ) antitrust lawsuit and partly over concerns about upstart search engine competitors like OpenAI's ChatGPT. It now trades at the cheapest forward earnings multiple in the Magnificent Seven.

TSLA PE Ratio (Forward) Chart

Data by YCharts.

The DOJ sued Alphabet's Google in 2023, alleging the company monopolized the digital advertising space by using its size and dominance to take out competitors, essentially forcing publishers to use its advertising tools and holding unfair control over pricing. In August of 2024, a judge ruled in favor of the DOJ, saying that Google is indeed a monopoly and that its power led to higher ad pricing. What really worried investors was a request from the DOJ that Google be forced to sell its Chrome browser, which would significantly impact the company and the digital advertising space.

Most experts and analysts following the case view this as an unlikely outcome. Baird analyst Colin Sebastian wrote in a research note in late November that he thought the DOJ was overreaching. "The DOJ remedies are, in our view, a wish list of restrictions on Google that stray well beyond the court's ruling." Analysts aren't alone. Cornell antitrust law professor Erik Hovenkamp recently told TechTarget that most judges typically don't want to break up a large company that consumers use every day, but would "rather take a more surgical approach" to remedying the issue. Also, Google plans to fight the DOJ's request and the lawsuit, and it has significant resources to do so.

The AI thesis is intact

More bullish analysts think investors will soon have the lawsuit's impact priced into the stock and turn their attention to the core business, which has strong AI prospects that many investors may be overlooking. The most bullish analyst is Phillip Securities Jonathan Woo, who issued a $240 price target in early November following the release of Google's third-quarter results. Woo is bullish on Alphabet's efforts to improve cost efficiencies and the higher profitability being exhibited by Google's cloud business. Woo also thinks Google has the ability to "deliver almost instant ROI [return on investment] on its AI investments."

While Woo's report may feel a little dated, other analysts are also upping their price targets. Wolfe Research recently issued a $230 price target on Alphabet as part of a bullish outlook for internet stocks. Wedbush analyst Scott Devitt recently raised his price target to $220, citing the positive outlook for the cloud business, possible margin expansion, and the company's ability to grow its AI offerings.

While not a legal expert, I also find it unlikely that a judge will rule for Google to sell Chrome or make some monumental change to the company. There are several other less drastic changes the court can impose to make Google less monopolistic. Google has been on the cutting edge of technology since the late 1990s, and I expect the company will remain cutting-edge with AI for years as well.

While I agree with those investors who think the Magnificent Seven stocks are all vulnerable to a pullback right now, I will also say that, if you are going to buy one, Google looks appealing thanks to the fundamental strength of its core business and what was likely a short-term sell-off driven largely by the lawsuit.

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*Stock Advisor returns as of January 13, 2025

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. 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 Fool's board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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