In my January 28 e-mail, I expressed concern that a bubble was forming in the AI sector. And I thought it "could burst later in the year, not immediately."
We're now later in the year, and I think the bubble has peaked and is now starting to deflate, as I outlined in my five e-mails last week:
On January 28, I also shared my thoughts on the Magnificent Seven tech stocks:
I think the implications of the AI bubble bursting will be very different for the Magnificent Seven companies. So I'd like to share my quick comments on each of them, in order of my most to least favorite...
Amazon (AMZN) and Alphabet (GOOGL) are tied for the No. 1 spot...
No. 3 on my list is Meta Platforms (META), which I also think will be an AI winner...
I'm neutral on Apple (AAPL) and Microsoft (MSFT)...
As for Nvidia (NVDA), this company is at the epicenter of the AI boom, so its stock could easily be cut in half if the bubble bursts. If you own it and have big gains, consider holding to possibly catch a last upward move but also having a tighter stop loss to avoid giving all those gains back.
Lastly, my least favorite stock in the Magnificent Seven by far is Tesla (TSLA)...
Since then, five of the seven stocks have clustered around the S&P 500 Index's 9.8% return. The other two have been outliers – Apple is up 33.9%, while Tesla has tumbled 17.8%:
Today, I'd like to share my updated thoughts on each company...
First, I continue to like Amazon, Alphabet, and Meta, my three longtime-favorite tech giants.
As a reminder, I named these three stocks as core holdings in my old firm Empire Financial Research's first newsletter on April 17, 2019.
Since then, through Friday's close, they're up 168%, 449%, and 297%, respectively. That's an average of 305%, nearly double the 164% return of the S&P 500.
1) I outlined the reasons Amazon is my favorite in my November 5, 2025 e-mail, which still hold true:
The company has grown its revenues and profits at an exceptional rate over the past decade...
... its stock has done poorly over the past five years. Amazon has trailed its big-tech peers and the S&P 500 over that time frame...
... the stock is now trading at close to the lowest level of [its forward price-to-earnings (P/E)] multiple in the past decade...
I analyzed the company's latest earnings report in my July 31 e-mail, noting:
Revenues rose 20% year over year to $200.6 billion, above estimates of $196.5 billion, driven by a 37% surge in Amazon Web Services ("AWS") revenue. Operating income and operating cash flow rose 43% and 33%, respectively.
And I concluded:
At around $264 this morning, the stock is trading at 26.3 times next year's estimates of $10.03. That's a slightly above-average multiple for a far above-average business, which makes no sense.
Amazon remains my favorite big-cap tech stock for 2026.
Today, with the stock around $256, it trades at an even lower 24.3 times next year's estimates of $10.55. That's close to its lowest forward P/E multiple in the past decade, as you can see in this chart:
2) I wrote about Alphabet's latest earnings report in my July 24 e-mail, highlighting its 24% and 30% growth in revenue and operating income, respectively.
I also touched on investors' concerns about its capital expenditures ("capex") spending:
Alphabet's capex spending is breathtakingly huge and, frankly, I have no idea what the right number is for the company. But as I've written many times, I think management is smart to spend however much it takes to win the AI race...
... established companies known as "hyperscalers" – like Alphabet, Meta, Amazon, and Microsoft – can leverage AI to grow their dominant businesses. So I'm willing to give them the benefit of the doubt.
As for its valuation, I concluded:
The stock closed yesterday at $317.69, and consensus analysts' earnings expectations for this year are $14.26. That gives it a price-to-earnings (P/E) multiple of 22.3 times.
That's roughly the same as the S&P 500 Index's current forward multiple... for a far above average business.
My view today is still the same as it has been for more than seven years: Alphabet is a great stock for conservative, long-term-oriented investors.
Today, the stock is up to around $343, and next year's earnings estimates are $15.08 per share. So the stock trades at 22.7 times forward earnings.
I think Alphabet is still "a great stock for conservative, long-term-oriented investors."
3) I think Meta will also be an AI winner, as its massive investments are paying off in better targeted ads. You can see it in the numbers...
Last quarter, users only grew 3%, yet revenues grew 28% year over year. That's thanks to a 14% increase in ad impressions and a 12% rise in price per ad.
In my July 31 e-mail, I concluded:
I think the [spending] concerns are overblown. This reminds me of when investors lost their minds about Meta's big investment in the metaverse, which briefly caused the stock to drop below $100 in late 2022 – just before it took off. CEO Mark Zuckerberg is rational – if Meta's capex isn't paying off, he'll scale it back.
At yesterday's closing price of $539.03, the stock now trades at a mere 15.3 times next year's estimates of $35.12. That's not quite as low as the 12.9 forward multiple it reached in late 2022, but it's close.
At this price, it's now tied with Amazon as my favorite big-cap tech stock.
The stock is up 32% since then and now trades at 20.5 times forward earnings – still an attractive price.
4) I've turned bearish on Apple due to its valuation...
Investors are enamored with it because it wisely avoided the AI capex spending war. And without a doubt, Apple is one of the greatest companies of all time.
After a few years of stagnation, growth has picked up in the past two years. Over the trailing 12 months ("TTM"), revenue rose 14.2% year over year:
The stock has surged, hitting an all-time high last week. So it now trades at 36.1 times forward earnings, its highest level in 19 years:
With revenue of $467 billion, I think Apple is so large that it will struggle to grow fast enough to justify such a high multiple.
5) We recommended Microsoft at $30.77 in our February 2012 issue of Stansberry's Investment Advisory and have never wavered in our conviction. Since then, the stock has paid out $29.84 per share in dividends.
I covered its latest earnings report in my July 31 e-mail, highlighting its 18% and 23% growth in revenue and earnings per share ("EPS"), respectively. I concluded:
With consensus analysts' estimates for the next year at $19.50, Microsoft's stock trades at a modest 23.1 times forward earnings. That's a market multiple for one of the greatest businesses of all time, which makes no sense.
Since then, the stock is up 18%, and earnings estimates are now $19.78 per share. So its forward P/E is 27 times. That's a reasonable multiple for such a great company, making the stock a comfortable hold.
6) I analyzed Nvidia's second-quarter earnings in my August 27 e-mail. Its growth continues to astound, with revenues and EPS up 106% and 120%, respectively. The stock trades at a modest 23.3 times 2027 estimates and a mere 13.7 times 2028 estimates.
The company is benefiting from being at the epicenter of the AI boom. But that also means its stock could easily be cut in half if the bubble bursts...
If you own it and have big gains, consider holding to possibly catch a last upward move but also having a tighter stop loss to avoid giving those gains back.
7) Lastly, my least favorite stock in the Magnificent Seven by far continues to be Tesla – but for reasons unrelated to a bursting AI bubble.
I included it in my "Stinky Seven" list of stocks to avoid, which I first published a year ago on October 29 (it was the "Stinky Six" back then). It's down 21% versus a 12% increase in the S&P 500 since then.
As I wrote in my January 28 e-mail:
With its tax-credit expiration in the U.S. and competition from Chinese manufacturers, I expect Tesla's vehicle sales to collapse. I'm also very skeptical that the company's Optimus humanoid robots and the nascent Robotaxi business will take off.
In addition, its valuation is absurd: With a $1.4 trillion market cap, the stock trades at 265 times 2025 earnings per share and 198 times 2026 estimates (which I don't believe).
Sure enough, Tesla is on track to badly miss 2026 earnings estimates. They were $2.33 per share a year ago but are projected to come in at $1.74 instead.
With the stock down to around $365, it's trading at 210 times this year's estimates and 168 times next year's (which I don't believe).
These are absurd multiples for a company whose top line has stalled out and profits have tumbled by 70% in the past five years:
8) In summary...
Amazon, Alphabet, and Meta remain my three favorite large-cap tech stocks.
Microsoft is a comfortable hold.
Apple will likely be flat for many years as its growth catches up to its stock and its multiple contracts to a more reasonable level.
Nvidia could suffer from a bursting AI bubble. If you own it, consider a tight stop loss.
And my view on Tesla remains the same as it has been – stay away from the stock.
Amazon, Alphabet, and Microsoft are open recommendations in our Investment Advisory portfolio. Only subscribers have access to our full reports and updates on these companies, along with our full portfolio. You can become a subscriber by clicking here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.