The rise of technology-centric stocks gave rise to the tag or label “Magnificent Seven” on Wall Street. These mega-cap tech stocks lifted U.S. equity markets to new highs in 2024. iPhone maker Apple is the largest by market cap ($3.2 trillion) and the only member of the US$3 trillion club.
Apple, NVIDIA, and Microsoft (NASDAQ:MSFT) belong to the information technology sector. Google parent Alphabet (NASDAQ:GOOG) and Facebook parent Meta Platforms from the communications services sector are part of the mix. Consumer discretionary stocks Amazon.com and Tesla complete the cast.
But can Canadians invest in them? Since the Income Tax Act allows foreign holdings, the answer is yes. Magnificent Seven stocks are the cream of the crop and top market movers. NVIDIA is the acknowledged AI king, but its Canadian counterpart Celestica (TSX:CLS) is a better performer. However, two Mag 7 stocks are essential to Canadian portfolios.
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Market dominance
Alphabet dominates the global search engine market and will continue to command a massive share (nearly 90%) with Google Search. Chatbots like ChatGPT could pester the market leader but are not about to significantly reduce the billions of Google daily users anytime soon.
Besides Google Search, the US$2 trillion multinational technology conglomerate holding company has a collection of businesses. It owns YouTube, Waze, DoubleClick, Nest, Looker, Fitbit, and Mandiant. These companies offer software and internet-related services and products, such as cloud computing, streaming entertainment, mobile operating systems, and applications.
Notably, most of Alphabet’s revenue comes from advertising, although the contribution from Google Cloud is growing rapidly. In December 2023, it launched a powerful artificial intelligence model called Google Gemini, then enhanced to compete with or beat OpenAI’s GPT-4.
The company invests heavily in AI, yet free cash flow (FCF) in Q4 2024 rose around 215% year-over-year to US$215 million. Alphabet has serious competitors in the search engine market, but expect pacesetter Google Search to reign supreme for years. GOOG trades at US$166.25 per share and pays a modest 0.48% dividend.
Software champion
Microsoft, the world’s third-largest company by market cap (US$2.9 trillion), is widely recognized as the software maker champion. The tech titan is best known for its Windows operating systems and Office suite. On March 20, 2025, Scotiabank upgraded its rating to sector outperform.
Analysts at the Big Bank raised their average one-year price target to US$470, a 20%-plus upside from the current price. MFST trades at US$391.26 per share and pays a 0.85% dividend. In Q2 fiscal 2025 (three months ending January 31, 2025), revenue and net income rose 12% and 10% year-over-year to US$69.6 billion and US$24.1 billion, respectively.
Satya Nadella, Chairman and CEO of Microsoft, said, “Already, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year.” Microsoft Cloud revenue, driven by public cloud computing platform Azure, climbed 21% to $40.9 billion compared to Q2 fiscal 2024.
Like in previous quarters, Microsoft expects to deliver more productive, secure, and differentiated value across the cloud and the edge.
Competitive moats
Given the sustainable competitive advantages in their respective turfs, Alphabet and Microsoft are standout choices. However, for exemption on the 15% U.S. withholding tax on dividends, Canadians must hold the stocks in a Registered Retirement Savings Plan (RRSP).
