Since early June, Wall Street’s major stock indexes have all rallied to fresh record highs. While artificial intelligence (AI) is the trend behind this surge in stock valuations, it’s the “Magnificent Seven” that have done most of the heavy lifting. The Magnificent Seven is composed of:
These are some of Wall Street’s most influential businesses, and they’re all, to some degree or another, dependent on the AI revolution for their future growth prospects. They’re also companies with markedly different outlooks, based on their operating cash flow.
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Ranking the Magnificent Seven according to their forward-year cash flow
While the time-tested price-to-earnings ratio is the safety blanket for investors when quickly evaluating mature businesses, it doesn’t do justice to growth stocks (i.e., the Magnificent Seven). Given that these companies aggressively reinvest their cash flow into high-growth initiatives, future cash flow serves as a far better measure of value.
According to Wall Street’s consensus cash-flow-per-share estimates for next year, here’s how the Magnificent Seven rank from most (i.e., cheapest) to least attractive (as of July 23):
Based on future cash flow, neither electric-vehicle maker Tesla nor iPhone titan Apple are particularly attractive. On the other hand, Meta and Amazon stand out for all the right reasons amid a historically expensive stock market.
Meta and Amazon are screaming bargains amid a pricey stock market
Meta Platforms is the cheapest Magnificent Seven stock, which likely reflects the immediate benefits it’s recognized by integrating generative AI into its social media advertising platforms. Companies having the ability to tailor static or video messages to users are improving click-through rates and enhancing Meta’s already stellar ad pricing power.
Meta’s predominantly ad-driven sales are also intricately tied to the health of the U.S. economy, which spends a disproportionate amount of time expanding. Advertising might not be a game-changing operating model, but businesses have demonstrated a willingness to pay a premium for Meta’s services.
