Unanticipated Favorite "Wonderful Seven" Equity Selection for 2025 in My Opinion
The renowned "Magnificent Seven" shares, comprising seven of the world's largest tech giants, once again spearheaded market growth in 2024. The seven companies, which consist of Apple, Amazon, Alphabet (with a slight decrease of -1.17% for GOOG and -1.01% for GOOGL), MetaPlatforms, Microsoft, Nvidia, and Tesla, are all expected to close the year with positive returns. This year, Nvidia has spearheaded the group for the second consecutive year, boasting an impressive year-to-date increase of over 168%, following a staggering 238% rise in 2023.
As the group continues to thrive over the past two years, many investors are curious about which of these powerful stocks will lead the charge in 2025. Although every company in the group has its merits, I predict that Alphabet will take the helm in 2025.
Google's search concerns hinder Alphabet
Designating Alphabet as the "Magnificent Seven" stock most likely to excel in 2025 may seem audacious. After all, a federal judge ruled that the company had violated antitrust laws and engaged in unfair practices to retain its dominant position in search. Additionally, investors have expressed concern about the potential impact of artificial intelligence (AI) on Alphabet's search business through competitors. Essentially, these two notions appear to contradict each other, as a monopoly cannot simultaneously face significant competitive threats. Nevertheless, Alphabet's stock became enmeshed in this debate throughout the year, forming an unfortunate lose-lose situation.
However, this negative narrative could actually help Alphabet navigate the remedy phase of its antitrust case. The appeal process is expected to stretch out for some time.
Historically, Google has dominated the search market due to its superior product. This has led Apple to declare that no amount of money could entice it to make Bing its exclusive search engine. Consequently, new AI-powered search engines, like ChatGPT's SearchGPT and Perplexity AI, have emerged. These search engines aim to deliver direct responses to users, eliminating the need for sifting through link-based search results.
Although these emerging search engines present intriguing alternatives, Alphabet's search engine has been leveraging AI through its AI Overviews, resulting in exceptional improvements. Furthermore, Alphabet's existing ad network and large user base will be essential for effectively monetizing AI search. These new competitors will require a substantial user base to attract sufficient advertisers for their search results, and in the interim, they will likely continue to accrue substantial losses.
Consequently, Alphabet has observed minimal impact on its business, with its search revenue increasing by 12% year-over-year last quarter. Additionally, the incorporation of new ad formats attached to its AI Overviews has the potential to become a significant revenue driver in the future. Nevertheless, this development is likely enough to warrant stronger measures from antitrust authorities, ensuring a balanced remedy.
Alphabet's innovations fuel growth
Meanwhile, Alphabet's innovation is starting to garner attention. The company has partnered with Broadcom to develop its own custom AI chips, which have significantly reduced inference processing times and lowered costs. When Alphabet's cloud computing business reported a remarkable 35% increase in revenue to $11.4 billion last quarter, the company attributed its success to the combined use of graphics processing units (GPUs) and its new custom tensor processing units (TPUs).
Recently, Alphabet surpassed OpenAI with numerous innovative updates to its AI image and video tools. OpenAI's AI video generator, Sora, has been criticized for unnatural movements and a limited resolution of 1080p. However, Alphabet's Veo 2 offers 4K resolution, while its improved understanding of physics and human expression significantly enhances its overall realism.
Alphabet also debuted its new Gemini 2.0 AI model, which functions as an autonomous AI agent. Alphabet plans to integrate Gemini 2.0 with its AI search overviews and expand its capabilities to other products.
Perhaps Alphabet's most groundbreaking announcement was its development of the Willow chip, which has achieved significant advancements in quantum computing. Quantum computing's primary challenge is error mitigation during scalability, but Willow has demonstrated an impressive ability to reduce errors while scaling up. While commercial applications for the technology are still years away, Alphabet has established itself as the industry leader in this rapidly emerging field.
In summary, the "Magnificent Seven" stocks helped push the market higher in 2024, with all seven companies on track to see positive returns. Nvidia once again led the way, with a year-to-date increase of over 168%, while Alphabet, despite facing some challenges, has the potential to lead the group in 2025 through its innovative products and technologies.
Investors stand to gain a lot when they invest in Alphabet. Primarily, they're getting their hands on a powerful search engine with significant monetization potential through AI, which is currently leading the pack. Additionally, they're obtaining one of the top-tier video streaming services, YouTube, along with a leading ad network. Investors also receive a slice of one of the major players in the cloud computing sector, which has recently achieved profitability.
Moreover, investors are being offered the early leader in autonomous driving, Waymo, which is already operational in various cities. They're also gaining access to a pioneer in quantum computing, as well as a frontrunner in AI research, courtesy of the DeepMind subsidiary.
This compelling collection of established and emerging businesses comes at a price-to-earnings ratio (P/E) of less than 22, making Alphabet one of the most affordable mega-cap tech stocks available in the market.
Given its value, market leadership, and attractive valuation, Alphabet tops my list of top Magnificent Seven stock picks for 2025.
Although Alphabet faced antitrust concerns and competition from AI-powered search engines like ChatGPT and Perplexity AI, its superior AI technology and monetization potential through its search engine and ad network have allowed it to maintain its market position. The company's partnership with Broadcom for custom AI chips and advancements in its quantum computing technology further position it as a leader in its field, making it a strong investment opportunity with an attractive P/E ratio.
Considering Alphabet's established market leadership, innovative products, and competitive pricing, it could potentially continue its growth trajectory and lead the "Magnificent Seven" in 2025, offering promising returns for investors interested in the finance and technology sectors.
