1 Stock I’d Drop From the “Magnificent Seven” and 1 I’d Add

Today, we’ll look at a Magnificent Seven stock to avoid and one to add to your self-directed portfolio.

A group of tech stocks listed in the US stock market dubbed the “Magnificent Seven” have shown themselves to be real gems for investors far and wide. Despite facing a lot of odds, these stocks have seen their combined market value fly past 250%, truly living up to the name people have given these equity securities.

Canadian tech stocks still have a long way to go to reach a magnificent status. Until such a time comes, the Magnificent Seven offer plenty of opportunities for Canadian investors to leverage growth. While all of the stocks classified in this group have achieved remarkable feats, not all of them might be as bright and shiny as potentially lucrative investments in the long run.

Today, we’ll look at a Magnificent Seven stock to avoid and one to add to your self-directed portfolio.

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Stock to avoid: Tesla

Tesla (NASDAQ: TSLA) has long been the darling stock for many, making millionaires out of a lot of its early investors. The electric vehicle (EV) market owes a lot to this company for revolutionizing the technology that’s led to the industry being where it is today.

The eccentric billionaire behind the company, Elon Musk, has also fueled the growth of the company through his personal brand over the years.

While Tesla has been considered synonymous with EVs for a while, it’s important to look past the bells and whistles and at the company’s fundamentals itself.

Despite all its innovations and past successes, its trailing price-to-earnings (P/E) ratio of 64.69 and a 72.99 forward P/E suggests that at US$230.29 per share, it might be priced to perfection. Any obstacles to the company’s profitability right now can lead to substantial volatility.

With its financial stability a concern, it might not be as suitable an investment for those seeking substantial long-term gains.

Stock to add: NVIDIA

NVIDIA (NASDAQ: NVDA) sneaked up on all the other big tech companies in the U.S., especially with its breakout performance in the first quarter (Q1) of Fiscal 2025. Reporting a 262% increase in revenue from the same quarter last year, NVDA stock earned a massive US$26 billion. The reason for its remarkable performance of late has been the surge in the data centre market, most of which relies on processors made by Nvidia.

Nvidia reported a jump of over 600% in its earnings per diluted share from the same quarter last year and 21% from just the previous quarter. The company has managed to post significant returns and the ability to generate more in the coming years. The artificial intelligence (AI) industry is only slated to grow in the coming years and NVDA stock is right in the middle of it.

As of this writing, NVDA stock trades for US$119.10 per share, and its recent 10-to-1 stock split has made it accessible to far more investors. For those interested in leveraging the AI-led industrial revolution, NVDA stock might be an excellent pick.

Foolish takeaway

As solid as Tesla might seem due to its position in the EV industry, several factors make it too volatile to be a reliable investment at elevated levels for investors with a lower risk tolerance.

Nvidia stock is riding on the massive surge in the AI market, as its processors are pivotal for data centres. The company’s financials are solid, and the demand for its products is only expected to increase as it powers the industrial revolution. While not immune to broader market volatility, it can be the more lucrative investment between the two.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.

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