Microsoft Hits an All-Time High. Here's Why These 2 "Magnificent Seven" Stocks Could Be Next.

Core Viewpoint - Microsoft has reached a new all-time high, becoming the only company valued over $3.5 trillion, prompting speculation about which "Magnificent Seven" stock could follow suit, particularly Meta Platforms and Nvidia, which are seen as strong investment opportunities now [1][3]. Group 1: Company Performance and Transformation - Meta and Nvidia are the closest members of the "Magnificent Seven" to their all-time highs, indicating potential for rapid growth [3]. - Microsoft has successfully transitioned from legacy software to being the second-largest cloud computing player, leveraging AI to enhance efficiency and profit margins [6]. - Meta has transformed Instagram into a dynamic platform, significantly contributing to revenue and margins, allowing it to compete effectively with TikTok [7]. - Nvidia has shifted its focus from graphics to compute and networking, which now constitutes the majority of its operating income, driven by demand for supercomputing platforms [8][9]. - In Nvidia's latest quarter, compute and networking generated $39.6 billion in revenue and $22.1 billion in operating income, showcasing substantial growth compared to the previous year [9]. Group 2: Financial Health and Valuation - Microsoft, Meta, and Nvidia have all demonstrated strong financial stability, with each company holding significantly more cash and equivalents than long-term debt [19][20]. - Microsoft reported $79.6 billion in cash against $39.9 billion in long-term debt, while Meta had $70.2 billion in cash against $28.8 billion in long-term debt, and Nvidia had $53.7 billion in cash against $8.5 billion in long-term debt [19][20]. - Despite slightly higher price-to-earnings (P/E) ratios compared to their five-year medians, the valuations of Microsoft, Meta, and Nvidia are considered reasonable given their growth potential and industry positions [12][16]. - The forward P/E ratios for Microsoft and Meta suggest low earnings growth expectations, while Nvidia is still expected to grow quickly, indicating a disparity in market perceptions [15]. Group 3: Investment Outlook - Microsoft, Meta, and Nvidia are viewed as exceptional long-term investments due to their established business units, growth opportunities, reasonable valuations, and strong balance sheets [21]. - The companies are positioned as attractive options for long-term investors, emphasizing the importance of quality over price in investment decisions [22].