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The aptly named “Magnificent Seven” is a group of (primarily) technology companies that have generally generated above-average returns, especially over the past decade. The members of this clique are: alphabet, Amazon, apple (NASDAQ:AAPL), meta platform, microsoft, Nvidiaand tesla. Any company that brings in outsize profits is worthy of praise, but one of them, Nvidia, is in a class of its own.
The other members of the Magnificent Seven don’t even come close to Nvidia’s performance over the past decade. Still, I still won’t invest in this company.
Follow Warren Buffett’s advice
When a company’s stock price rises as much as Nvidia’s, one of the first questions investors think about is valuation. The future success of these companies is often built into their stock prices. If a company fails to meet the market’s high expectations, its stock price will likely fall. That may be the case with Nvidia, but that’s not why I stay away.
The simple reason I don’t invest in Nvidia stock is because I know very little about the company’s business. Nvidia is a leading manufacturer of graphics processing units, a critical electronic device component. This sounds like a great business model, but that’s about the extent of my expertise, or lack thereof, in this area.
So while Nvidia looks like a great company from the outside looking in, the company’s success over the past decade doesn’t make me want to invest in it. Warren Buffett, the world’s greatest investor, once said: “Investments have to be rational. If you don’t understand that, you shouldn’t do it.”
There’s no shortage of options
For what it’s worth, I would also avoid investing in Tesla for the same reasons. Will we be missing out on significant profits as a result? Hard to say. If you get into the habit of investing in companies you know nothing about, you might be able to pick up blue-chip stocks like Nvidia or Tesla that have done great things. But this approach will almost certainly also lead to terrible investments.
It is unclear whether the ultimate impact on overall revenue will be positive. Thankfully, the remaining stocks in the Magnificent Seven are all businesses that I understand pretty well. I think they are all worth serious consideration. Take Apple, for example. While not as spectacular as his Nvidia results over the past decade, Apple’s profits have also been impressive.
Additionally, the company has significant growth prospects. Although the iPhone is no longer the growth engine it once was, it would be a mistake to underestimate Apple’s ability to innovate. After all, the company didn’t make the phone, it just made an improved version of it and made a fortune in the process.
Apple’s habit of creating better mousetraps is well established. We are currently aiming to do the same within Generative Artificial Intelligence. Apple has lagged behind some of its peers in this area, but that hasn’t stopped the company. Then there’s his Apple services segment, with an installed base of over 2 billion active devices. The company has enough flexibility to monetize its user base in various ways.
Even though sales growth has slowed recently, the sky is the limit for Apple. In my view, the company’s stock still looks like a buy. The same goes for Alphabet, Amazon, Metaplatform, and Microsoft. The lesson for investors is: It’s not the end of the world if you miss out on a potentially great company because you don’t understand how they make money.
There are always other exciting stocks on the market whose businesses are easier to understand for each investor.
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Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Prosper Junior Bakiny has positions on Amazon and Metahis platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Nvidia is the best-performing ‘Magnificent Seven’ stock: Why I’m not buying it was originally published by The Motley Fool
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