Magnificent 7 stocks have been all the hype in recent quarters, and for good reason. I think most of that hype is more than justified. The market is now mostly driven by AI and the data center boom, and most people in white-collar jobs can attest that AI has greatly improved their productivity.
That said, it is still important to be careful here. Certain Magnificent 7 stocks may have gotten ahead of themselves, making now a good time to trim your exposure. Now, I will make it clear that you should not short any of these stocks due to the momentum in this space, and you will certainly lose over the long-run. But I think it is smart to lock in some profits on some overvalued names.
As such, here is one Magnificent 7 stock to ditch and two to buy instead.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) designs semiconductors for the AI and data center industry. The company’s Q1 2025 results were stellar, with revenue surging 262% year-over-year to a record $26 billion. Data Center revenue skyrocketed 427% to $22.6 billion, driven by robust demand for Nvidia’s Hopper GPU computing platform across cloud providers and enterprises.
However, I fear the market has priced NVDA stock for absolute perfection at current levels. While the company’s growth story is undeniably impressive, we must remember the semiconductor industry is notoriously cyclical. Many companies are developing in-house chips, which could dampen Nvidia’s future prospects.
I’ve seen this movie before. Typically, semiconductor stocks like Nvidia get bid up to euphoric valuations, only to come crashing back down at the first signs of weakness. That’s why I think you should consider trimming your NVDA positions here. Yes, shares could continue higher in the near-term, but I believe the risk/reward is skewed to the downside.
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Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a global technology leader that develops and sells software, services, and devices. I think it is by far among the sturdiest tech companies in the market due to how diversified and solid its revenue sources are. The company has become a shining star in the tech sector over the past few years, with its suite of productivity apps becoming indispensable for the white-collar workforce. Microsoft’s Windows remains the most widely-used operating system, while its Azure cloud platform continues to gain market share at an impressive pace.
I believe Microsoft’s early investments in OpenAI made it the kickstarter of the AI revolution. The company reported that over 65% of the Fortune 500 now use Azure OpenAI Service, and the company continues to innovate with offerings like Phi-3, its most capable and cost-effective SLM. Microsoft is also seeing an acceleration in large Azure deals, with billion-dollar-plus multi-year commitments from a number of industry leaders.
Microsoft Cloud surpassed $35 billion in revenue, up 23% year-over-year. Given this driver, I expect MSFT stock to remain in hot demand for a long time to come.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) continues to impress with its ability to grow far beyond online retail. As one of the major players powering the internet through Amazon Web Services, this company has truly diversified its business.
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In Q1, Amazon delivered 12.5% year-over-year revenue growth, which soared to $143.3 billion. The company’s operating income saw an even more dramatic jump, increasing by 221% to $15.3 billion. Free cash flow also skyrocketed compared to the year before, rising by over $53 billion. These strong results show the positive impact of Amazon’s ongoing efforts to improve efficiency across operations.
Management noted that around 60% of Prime orders in major US cities during the last quarter were received either on the same day or the very next day. This represents Amazon’s fastest delivery times to date. In my opinion, this high level of logistical performance is strengthening their competitive advantage.
Analysts project that over the next five years, earnings per share will nearly triple alongside continued double-digit revenue growth. Given this outlook, I believe the current valuation of around 40-times projected future earnings is reasonable. To me, AMZN stock appears to be a superb long-term investment opportunity. The company’s recent artificial intelligence breakthroughs powering their tools for third-party sellers introduce another exciting growth catalyst worth watching.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
