Big tech stocks have struggled recently as investors worry about whether investments in artificial intelligence (AI) will pay off and whether valuations are too high. Growing fears of a recession are also why the market appears to be under pressure.
Most of the brands in the “Magnificent Seven” are S&P 500 The stock is up 9% this year. NVIDIA, Meta Platformand alphabet While many stocks have seen double-digit gains this year, others have lagged. The Magnificent Seven teeth Microsoft (Nasdaq: MSFT) and Tesla (Nasdaq: TSLA).
Is now a good time to add these stocks to your portfolio?
1. Microsoft
Microsoft has been one of the best AI stocks to own in years, thanks to its billions of dollars invested in OpenAI and the enhancements it has made to its Office suite with AI features, so expectations are high for the computer maker. The company exceeded expectations in its most recent quarterly report, but investors may have been hoping for more.
Revenue for the period ended June 30 was $64.7 billion, up 15% from a year ago and slightly above the $64.4 billion that analysts had expected. Adjusted earnings per share were $2.95, slightly above the $2.93 that analysts had expected.
Microsoft has a great business and a lot of opportunity to benefit from the growth of AI, but the bar is high as it is one of the most valuable companies in the world, with its stock trading at a record 34 times earnings. To maintain this lofty valuation, Microsoft may need to do more than beat earnings. A 7% increase this year isn’t too bad, but it will likely need to generate much more growth to sustain its high growth rate. The big test will be how strong the demand is for the company’s new AI-powered PCs, and whether that can act as a catalyst for the business.
But in the long term, Microsoft remains a great stock to own given the vast growth opportunities in PCs, gaming, and cloud computing. The company’s business is strong, and while the valuation may seem a little high, as the company scales, so will its revenues and its valuation. If you’re looking for a stock you can buy and hold for decades, Microsoft is a great stock to add to your portfolio today.
2. Tesla
The worst-performing stock in the Magnificent Seven is Tesla. Without its recent rally, it would be down much more than its current 20% decline. That’s how bad the year has been for the electric vehicle maker.
Consumer demand for Tesla’s EVs has not been as strong as it used to be, likely due in part to a worsening economic situation and increased competition, leading Tesla to lower prices in response to other EV makers offering lower priced products.
The problem is that Tesla needs to raise prices to keep profit margins high, and if they aren’t high, margins will come under pressure. Lower margins mean higher stock prices. Price Earnings Ratio Investors are typically willing to pay a premium for Tesla shares, but doing so hasn’t been so easy to justify given the company’s slowing growth lately.
The company’s profit margins and growth rates have both trended negatively in recent quarters, worrying investors.
Tesla is not as easy to buy as Amazon. Its price-to-earnings multiple (55x) is high, and increased competition may make it difficult for the company to improve its financial situation in the near term. With so much uncertainty surrounding Tesla’s future, investors may want to hold off on buying the stock for now.
Should I invest $1,000 in Tesla right now?
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and public relations for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, also serves on The Motley Fool’s board of directors. David Jagielski The Motley Fool has no position in any of the stocks mentioned above. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, NVIDIA, and Tesla. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool recommends: Disclosure Policy.
Is now the time to buy the two worst-performing stocks in the Magnificent Seven? Originally published on The Motley Fool
