2 "Magnificent Seven" Stocks Billionaires Are Buying

Billionaire investors generally choose stocks of profitable companies that can safely preserve and grow their capital over the long term. This is naturally leading many top investors to invest in the "Magnificent Seven" -- a group of elite tech companies that have a history of market-beating returns and hold dominant competitive positions in their respective markets.

Amazon (NASDAQ: AMZN) and Meta Platforms (NASDAQ: META) (formerly Facebook) are two Magnificent Seven stocks that billionaire investors Chase Coleman of Tiger Global Management and Stephen Mandel of Lone Pine Capital are bullish on right now. These investors hold large stakes in both stocks and were still buying more shares as recently as the third quarter of 2024.

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Here's why these two stocks are no-brainer investments.

1. Amazon

Coleman's firm holds positions in several of the Magnificent Seven stocks, but the only one he was adding more shares of in the third quarter was Amazon. Professional investors and Wall Street analysts alike are very bullish on Amazon's prospects. It dominates e-commerce and also continues to hold a leading position in the rapidly growing cloud computing market.

At the end of 2023, Amazon had 586 million square feet of fulfillment centers and data centers to support growth in its online store and cloud computing business. It spent billions over many years to build this massive amount of infrastructure, but it's now reaping the rewards. Over the last four quarters through Q3 2024, Amazon earned $50 billion in net income on $620 billion of sales.

The stock has rocketed to new highs since bottoming out with the stock market sell-off in 2022. Net sales grew just 11% year over year in Q3 2024, but the stock is mostly responding to the company's improving profitability, with net income up 55% over the year-ago quarter to $15 billion. Most of the company's revenue comes from non-retail sources, including cloud and advertising services, which inherently generate high margins and point to attractive growth prospects.

Amazon is reinvesting in new services to strengthen its competitive position. It offers businesses artificial intelligence (AI) services in the cloud to build their own applications, which drove an acceleration in cloud revenue growth last year. On the retail side, it continues to offer over 200 million Prime members a wide range of perks across shopping, digital entertainment, and medical care, and it's even working on potentially launching a new satellite internet service.

Improving margins are expected to drive average annual earnings growth over 20% in the coming years, which explains why Coleman's firm continued to buy shares. Amazon holds a dominant position in its core markets that should deliver great returns for many years.

2. Meta Platforms

Instagram owner Meta Platforms is Lone Pine Capital's largest holding. (Coincidentally, Meta is also Chase Coleman's largest holding at Tiger Global.) Mandel's firm increased its $1 billion stake in Meta stock by 35% in Q3, suggesting a bullish view on the stock's return prospects.

Like Amazon, Meta is a well-entrenched business in its market. It has over 3.2 billion daily active users across its family of apps. The company uses advertising to monetize these users, which makes Meta one of the leading digital advertisers. It generated $156 billion in trailing-12-month revenue through Q3 2024.

Meta spent over $30 billion last year in capital expenditures to support technology, including AI, that serves as the backbone of its services. It is seeing growing adoption of its AI tools, with over 1 million advertisers using generative AI tools to create ads. Meta AI is helping users discover content, which is increasing the time people spend browsing Facebook and Instagram. This shows the potential for AI to benefit advertising revenue and deliver returns for shareholders.

Although Meta plans to increase its capital expenditures significantly in 2025, the company earns a high return on capital employed of over 30%. Given those returns, more investment in technology should lead to higher earnings. The Wall Street consensus has earnings growing at an annualized rate of 18% over the next several years, which should translate to solid returns for Meta investors.

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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. 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 no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Meta Platforms. The Motley Fool has a disclosure policy.