The Magnificent Seven stocks have really gone out of favour this year. Whether we’re in a mini-tech bubble (it’s more like a correction than anything else, though; the bear has really begun to roar quite loud for tech-heavy investors), a tariff-inflicted economic wound, the early innings of a recession, stagflation, or something worse, it’s certainly less fun to own shares of a tech firm than at any point over the past two years. Whatever the reason for the sell-off, I think the steadfast “stay the course” rule still applies. Bear markets happen every so often, and regardless of their reason, investors should think about the long-term trajectory rather than get distracted by those day-to-day fluctuations.
With the Magnificent Seven in a major hole, I think Canadian investors may have an opportunity to do some buying on the way down. Combined with the nice rally in the loonie versus the U.S. dollar, perhaps we’ve entered a period where the big U.S. tech plays are the biggest of bargains they’ve been in a while.
So, if you can handle the volatility, the Mag Seven group is worth checking out. Personally, I think there’s a lot of risk when it comes to some of the individual names, especially the ones that have sold off on U.S.-China tariffs. Indeed, it’s hard to stomach such risks unless you’ve got a really long time horizon. In any case, we’ll look at one of the names that has limited tariff risk compared to some of its peers.
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Alphabet stock: A magnificent bargain
Consider shares of Google’s parent company, Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), which have been in a horrendous bear market in recent quarters. On Wednesday, GOOG shares cratered, shedding close to 10% at their worst intraday moment before finishing the day down 7.5%. Indeed, all it took to send Alphabet shares into a tailspin were a few comments from Apple execs, which remarked on artificial intelligence’s (AI) potential to disrupt the business of search engines as we know it. Could Google Search’s moat finally be at risk?
To an extent. However, I’m inclined to believe that the impact of ChatGPT and Perplexity AI will be more gradual in nature. And let’s not forget that Google has an AI play in Gemini and skin in the search game with its AI Overviews. In any case, only time will tell what the real fate of Google Search will be. Personally, I think search engines and AI search models can coexist for the long haul. And given Apple is attempting to retain its US$20 billion Google search deal, it’s really in its interest to downplay the competitive positioning of one of its top partners, at least in front of judges.
In any case, I think Alphabet shares are an absolute steal after Wednesday’s sell-off, which I’m inclined to view as a gift to investors courtesy of a rattled Mr. Market. The stock trades at 17.1 times trailing price to earnings (P/E), which, quite frankly, is absurd for a tech titan and AI juggernaut like Alphabet. Sure, Google search faces AI competitive pressures, but I think such pressures are overblown, even as its dominance erodes as the U.S. Department of Justice shoots to break up the firm. Don’t give up on Alphabet, not while it uses AI to fend off AI in the realm of search.
