Two Magnificent Seven Stocks with More Upside Potential

The “Magnificent Seven”, a group of seven US-listed tech behemoths, has dominated stock market news for years, as they have driven equity markets higher, but cracks began to appear in 2025. Global competition, especially from China, excessively high valuations, macroeconomic issues, and a slowdown in earnings growth threaten the Magnificent Seven.

As of July 6th, 2025, the S&P 500 shows a year-to-date gain of 6.76% while the Magnificent Seven underperformed that with a smaller increase of 3.28%.

In this environment of underperformance, it might be wise to try to pick the best stocks here instead of investing in the basket of seven.

Magnificent Seven Performance 1/1/2025 - 6/7/2025

The table shows the performance issues, but it does not reveal the underlying issues that could magnify and apply downside pressure on this group of stocks.

Here are the core bearish factors worth considering:

• Valuations are excessive for most of the Magnificent Seven companies, but I have found two that are relatively cheap.
• The competition is heating up with cheaper and better solutions hitting the market, especially out of China, which will erode profits, profit margins, and market share of the Magnificent Seven.
• AI, data centers, cloud computing, e-commerce, and electric vehicles will dominate the headlines for years and decades to come, but macroeconomic issues and politics will slow down the very high growth rate.
• A changing regulatory landscape poses additional challenges for Magnificent Seven companies.

Here are the core bullish factors worth considering:

• AI, data center, and cloud investments will continue to expand globally.
• The size of the Magnificent Seven and diversified income streams can shield against some of the expected volatility moving forward.
• Corrections will offer an excellent buying opportunity for long-term portfolios.
• Some of the Magnificent Seven stocks offer a decent dividend to sweeten the deal for buy-and-hold investors, which is likely to increase in the future.

META’s Excellent Valuation Meets an AI Hiring Spree

Below is a monthly price chart of Meta, displaying its meteoric rise from post-pandemic lows and at the start of the AI wave:

META Monthly Price Chart

Of the Magnificent Seven stocks, Meta Platforms (META) stands out with its relatively cheap valuations. Its PE ratio of 28.85 makes META a better-priced stock than over 60% of its competitors. By comparison, the PE ratio for the NASDAQ 100 is 40.11.

What I like about META, besides its valuations, is the investment the company makes in AI. Seven OpenAI researchers joined Meta Platforms over the past month, and the accumulated brainpower grants META a distinct competitive edge. It may take some time to materialize and translate into tangible shareholder value, but all the ingredients are there. META is the best performer among the Magnificent Seven over the past year, and for good reason.

No other US-based AI firm presents the upside potential of META. Some investors have voiced concerns over its capital expenditure on metaverse and AI. I believe the company and its investors will reap the dividends of its strategy for years to come. META also has a tremendous goldmine revenue-wise with its ad services sold on Facebook, Instagram, WhatsApp, Threads, and Messenger.

Meta Platforms Fundamental Analysis Snapshot

An Extra Bullish Catalyst

The breakout on April 25^th, 2025, has taken the Bull Bear Power Indicator into bullish territory. This indicator has maintained its stance ever since then.

Microsoft

Microsoft (MSFT) is another Magnificent Seven stock boasting a relatively cheap valuation with a PE ratio of 38.61. Its return on assets, return on equity, and return on invested capital rank within the top five percentile.

While Amazon grabs more attention with its AWS cloud service, the largest one globally, the upside for Microsoft is greater with its Azure service. Microsoft’s balance sheet is not as strong as I would like. Still, it has the income diversity to expand its AI push beyond other AI companies, and its leadership in software should attract many companies to its Azure services.

The ease for developers to create solutions and the investment in the dev community are already paying off. I expect this trend to accelerate. The close relationship with OpenAI grants it another edge in the global AI race, and MSFT manages to attract and retain top talent to advance its business plan.

Microsoft Fundamental Analysis Snapshot

An Extra Bullish Catalyst

Since its price gap to the upside on May 1st, 2025, the Bull Bear Power Indicator was in bullish territory on every trading session.

Microsoft Monthly Price Chart

How to Invest in META and MSFT?

I expect a market correction is likely to happen during the second half of 2025, and the Magnificent Seven will almost certainly play an outsized role in the sell-off if it happens. The massive strong gains are prone to profit taking.

So, I recommend buying the dip on Meta and MSFT. Patience and discipline are key. I also advise investors to split their capital into multiple entries rather than a one-and-done purchase. A 10% to 25% correction from current levels is reasonable, especially with the ongoing tariff war, economic uncertainty, and stubborn inflation. Stagflation risks worry me the most, followed by government debt and private credit.

META and MSFT have excellent long-term potential. I will use each 10% drop in the share price to add to the position. Rather than using a set share count, I will use dollar-cost averaging (DCA). It refers to buying the same dollar amount each time. For example, you would buy $5,000 worth of stocks in META and MSFT each during a 10% correction. It makes sense for buy-and-hold portfolios. Alternatively, I may increase my purchases if we witness a 30% correction.

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