In the face of naysayers, the meteoric rise of Palantir (PLTR) stock has been nothing short of spectacular. To be certain, this is a very real, very fast-growing, very high profit margin business benefiting from the intersection of big-data software and accelerating Artificial Intelligence (“AI”). This report reviews 5 big risks of “backward-looking financial analysis” that caused most Wall Street analysts to miss this generational wealth-building opportunity over the last few years (while many retail investors got rich), as well as what these 5 big risks say about the business and the share price opportunity going forward.

About Palantir

Palantir is a software company that builds AI-powered platforms to help organizations analyze massive amounts of data for real-time decision-making. Its main products are Gotham (intelligence and defense applications used by governments), Foundry (commercial data management and operations) Apollo (software deployment across environments) and its Artificial Intelligence Platform (AIP) (for deploying large language models and agentic AI in secure settings). Palantir serves government clients and commercial sectors. And in recent years, it has been emphasizing “decision intelligence,” ontology-driven AI, and high-stakes operational leverage.

Growth in The Face of Naysayers

As you can see in this next chart, over the last three years Palantir’s share price (blue line) has risen from around $7 to over $200 (spectacular growth) while Wall Street analyst price targets (orange line) have consistently lagged the share price gains (generally increased only after price gains have already occurred—suggesting they have little to no forecasting ability whatsoever).

So what was Wall Steet doing wrong that caused them to miss the price gains ahead of time? In a nutshell, they were applying traditional financial analysis techniques to a non-traditional company (as will be described in the next section).

And just for a little more color (and as a point of reference) Wall Street still doesn’t love Palantir (lots of lukewarm “hold” ratings, but not too many “buys” or “strong buys”) as you can see in the graphics below.

5 Big Risks of Backward-Looking Financial Analysis as Applied to Palantir

So with that backdrop in mind, let’s consider 5 big risks of traditional backward-looking financial analysis when applied to the disruptive growth story of Palantir.

1. Software and AI: Not Your Granddad’s Market Disruptors

The type of market disruption being caused by Palantir is easy to underestimate when comparing it to history. For starters, software stocks (such as Palantir) are very different than the traditional manufacturing companies that dominated US markets when valuation metrics like “price-to-earnings ratio” made a lot more sense. Specifically, software companies like Palantir have much higher margins and much simpler scalability potential than technology companies of decades ago (where scaling often meant hiring more people and building more factories). Palantir CEO Alex Karp alludes to this differentiation in his most recent shareholder letter, when he writes:

“We have grown quite significantly in recent years.

And yet, counterintuitively to many, including ourselves at times, our reluctance to abandon constraints has been a principal and driving force of our continued rise.

Our headcount is one manifestation of this disciplined approach. The casual expansion of our ranks would have diminished the need to lean even more heavily on the strength of our software and the Ontology and to ensure their continued maturation. The alternative would have been to rely on an army of bright minds to do work that would have obscured the platform’s weaknesses and ultimately hindered its development.”

Karp is saying it’s hard for even him to believe how different (and disruptive) Palantir software is (i.e. no need to scale headcount for growth as has been the case for companies throughout history).

And now factoring in the power of AI on top of an already powerfully disruptive software industry (whereby AI allows new software to be created dramatically faster and with less people) software is truly taking over the world (or “software is eating the world” as Marc Anderseen famously predicted in 2011).

Overall, the rate of disruption caused by AI software is easy to underestimate when comparing it to the disruption of the past. This is one big reason why Wall Street underestimated Palantir, and it remains a big risk going forward.

2. Defying Traditional Valuation Metrics (For Good Reason)

Here is a look at how Palantir (recently the 18th largest stock in the S&P 500, by market cap), compares to other top names (see table below). Specifically, Palantir looks extraordinarily expensive by traditional valuation metric (such as P/E ratio and P/S ratio).

However, these traditional valuation metrics are better suited for companies of decades past, and don’t give enough credit to the rapid disruptive growth potential (Palantir is expected to grow revenues by 54% this year and 42% next year) and large market opportunity (the AI megatrend is huge—unlike the type of high growth the market has experienced in the past).

So while many Wall Street analysts underestimated Palantir’s growth potential in the past, this remains a risk today (the market may still be underestimating how good this business is). And Palantir’s incredible growth trajectory sits a top wide gross and net margins (see table above)—a truly extraordinary combination!

3. Karp’s Short-Term Voting Machine Prints Money

Alex Karp (“CEO”) is the jedi mind trick of Palantir encouragement, and his ability to strike a positive emotional chord with investors is both impressive and value creating for shareholders. For example, a common complaint from institutional investors (the ones that largely missed out on Palantir’s epic rally) is that the share price gains have been driven by low-information retail investors and fueled further by an extremely fired up and defiantly optimistic CEO, Alex Karp.

For example, in the latest shareholder letter, Karp unapologetically boasts of Palantir’s:

“$1.2 billion in revenue for the third quarter of the year, a new record in our more than twenty-year history, representing an accelerating and otherworldly growth rate of 63% over the same period the year before.”

And while saying things like “otherworldly” sounds impressive, the reality is Palantir’s revenue over the last 12 months puts it firmly in the bottom 10% of the S&P 500 (not so impressive when you look at it that way—especially considering it is the 18th largest S&P 500 stock by market cap).

Nonetheless, Palantir’s extreme valuation (it recently traded at over 400 times earnings) has allowed the company to richly compensate and retain employees—which is an important part of its success. For example, you can see just how much Palantir’s shares outstanding have increased (largely through restricted share units and the exercise of stock options) in the following chart.

So while old school investors may suggest Palantir’s share price has risen as the result of short-term retail voting (an allusion to the famous Ben Graham quote: “in the short run, the market is a voting machine, but in the long run, it is a weighing machine”), Karp has used the rapid price gains to create very real value for the company’s shareholders.

And again, the risk here is that investors are not recognizing the powerful market leadership position Palantir has already built in a very short period of time since going public in 2020 (which by the way was also spectacular timing in raising cash while market prices were high—thanks to post-covid stimulus).

4. Business Lifecycles Have Changed

In decades past, valuing companies was much easier because the rate of innovation was lower and business models didn’t change as rapidly. This is important because the valuation methodologies of past decades do not capture the business lifecycles of today.

For example, business lifecycles today are much faster and much slower, and investors are more patient and more rapidly rewarded. Specifically, the rate of innovation in software (especially those fueled by AI) is much rapider, yet investors are also willing to incubate new businesses much longer without worrying about maximizing short-term profits as Wall Street would prefer. This amalgamated conundrum confounds investors trying to apply traditional financial analysis (such as the old-school Wall Street analysts who missed the epic Palantir rally) and rewards younger investors and companies who are able to learn and understand (such as Palantir and its shareholders).

In fundamental and financial terms, Palantir was a negative-profit government contractor for years, while forward-looking patient investors allowed the commercial business to incubate and while the durable long-term big-data-and-AI profits only recently began to emerge.

Not realizing how business lifecycles have changed remains a risk today, especially as Palantir remains at the forefront of rapid innovation and change.

As a specific example, the battle front in modern-day war has moved to real-time big-data and AI intelligence, such as the type likely used by President Trump and The US Department of War in recently removing Nicholas Maduro in Venezuela, as described here, here and here.

5. Extrapolating the Past into the Future

To play “devil’s advocate,” extrapolating past valuation norms onto Palantir is what caused many traditional analysts to miss the spectacular share price gains in recent years, and similar extrapolation presents a similar but contrary risk going forward today.

For example, investors are growing increasingly accustomed to Palantir’s spectacular growth, despite the fact that it may already be slowing (the rate of expected revenue growth this year (54%) is lower than the third quarter number cited earlier (63%), and higher than next year’s expected revenue growth rate (42%, see table)).

(Q4 2025 Letter to Shareholders, Alex Karp, Palantir CEO)

Without question, Palantir is an exceptionally strong business that will be around for many years to come (the type of software applications it builds are mission critical and thereby create fantastically sticky revenue—a great thing). However, if revenue growth slows and/or doesn’t meet investor expectations, the stock’s valuation multiples have a lot of room for compression—and thereby potentially driving the share price lower in the short and intermediate term.

For perspective, recently trading at 421 times earnings (see earlier table), it would take 421 years for the company to earn back the cost of one single share, assuming zero growth. And even with its continuing high growth trajectory, the share price has already priced in many years of spectacular growth. That’s not to say the valuation and shares cannot still go dramatically higher—they can. But extrapolating continued extreme growth of the past into the future is a risk factor that investors need to consider.

The Bottom Line

Palantir is an absolutely fantastic high-growth business at the forefront of software and AI, and I firmly believe it will be a dramatically larger business (in terms of revenues and profits) 10 years from now. My ONLY problem with this company is the nosebleed valuation (and the military/war stock status—depending on your personal views on that type of thing).

I owned Palantir shares from ~$14 to over $100—before exiting (and I have missed out on a lot more gains since then as the price has continued to rise dramatically). This is why I invest through a prudently concentrated/diversified portfolio—which continues to serve me very well in terms of long-term compound growth.

And despite the temptation to hop back into Palantir here (especially considering the possible big unexpected revenue bump forecast from Trump’s latest “Department of War” activities when Palantir announces earnings on Feb 2nd), I am not buying shares because I believe there are better risk/reward opportunities from a valuation standpoint, particularly within the AI megatrend—such as some of the opportunities in the table below—and even some of the stocks I wrote about here: Alphabet’s Big Rally: Ranking the Magnificent 7.

At the end of the day, you need to do what is right for you. Disciplined, goal-focused, long-term investing continues to be a winning strategy.

Alphabet stock (GOOGL), also known as Google, is up 77% over the last year, and the gains are driven by several of the same market themes (e.g. the cloud, AI and ecosystem) fueling the “Magnificent 7’s” dominance versus the rest of the S&P500. Alphabet has been a stalwart position in my portfolios (especially since the overblown narrative that ChatGPT would overthrow Google’s search dominance), and I’m sharing this report to help readers formulate their own forward-looking opinions. Specifically, this report ranks the Mag 7, including a special focus on Alphabet, and then concludes with my strong opinion on portfolio positioning going forward.

Google’s Big Rally: The Mag-7 Megatrend Themes Making It Possible

For starters, Google shares have soared more than 77% over the last year (see table below), and the gains have been driven by many of the same overarching themes benefiting the Mag 7, such as:

• The Cloud: Over the last two decades, the incredible migration of data (from personal hard drives and company servers into the cloud—basically datacenters) has been spectacular. Companies that missed this trend (e.g. IBM (IBM)) were left behind and companies that got ahead of it (first Amazon, then Microsoft and Google) have capitalized incredibly.

• Artificial Intelligence: This recent theme (in the last few years) has benefited cloud companies even further because the massive amount of data and compute power required by AI means massive ongoing business and revenue growth for cloud companies. It is also only just beginning to open new opportunities for Apple (partnering with Google Gemini), Microsoft (partnering with OpenAI), and other Mag 7 companies spending massively on Nvidia’s leading chips powering almost everything AI at this point.

• Digital Advertising: Alphabet’s Google and YouTube services (which are hosted in the cloud and being accelerated by AI) generate truly spectacular advertising revenue, much like other Mag 7 companies who have been able to accelerate advertising in a major way (e.g. Meta, Microsoft and Amazon)

• Powerful Ecosystem Moats: Google, much like the rest of the Mag 7, has been able to build massive competitive advantages through walled garden ecosystems whereby they keep users captive within their own ecosystems (so as to ward off competition by preventing it from ever gaining any traction).

And based on these trends and competitive advantages, I fully expect the Mag 7 to keep outperforming the rest of the S&P 500 over the next 12-18 months (and beyond) for a few basic reasons:

• Stronger earnings growth is projected for the Mag 7 (18-23% in 2026) versus ~13% for the other ~493 stocks. In the long-term, share prices tend to follow earnings growth fairly closely, as you can see in the chart below.

• Ongoing AI momentum, backlog monetization, and capex payoffs will likely continue to drive outsized Mag 7 returns, as recent heavy capex spending (by essentially all of them) is an indication of healthy expected growth ahead.

• Slower non-AI growth will likely continue to hamper the S&P493 as their “older economy” business models will likely continue to grow, on average, just at a slower pace due to their lack of market disruption opportunities (compared to the Mag 7).

About Google:

For a little perspective, Google generates the majority of its revenue (~80%) from search and YouTube advertisements (with ~35% margin), and then from its growing cloud business (~10% of revenue, and with 24% margins), as well as ~10% of revenue from other bets (e.g. Waymo self-driving vehicles and Verily healthcare services).

Google’s Competitive Advantages:

Alphabet’s competitive advantages stem from its dominant position in search (with roughly 90% global market share), vast data moat (from billions of daily user interactions), and massive economies of scale in infrastructure. Further, Alphabet’s integrated ecosystem (spanning Android, YouTube, Google Cloud, and AI advancements like Gemini) creates powerful network effects and high switching costs (for users and advertisers).

Google’s Growth:

Alphabet is positioned for continuing growth going forward, driven mainly by accelerating monetization of AI (through Gemini integrations across search, YouTube, and Google Workspace) as well as significant expansion in Google Cloud, especially considering ongoing massive backlog conversion and growing AI demand. Plus, Waymo’s accelerating commercialization adds some diversification away from core advertising.

Further, Alphabet’s major partnership with Apple (adopting Gemini for Siri) and heavy recent capital expenditures signal healthy ongoing growth.

Google’s Risks (including Valuation):

From a risk standpoint, Alphabet faces continuing antitrust and regulatory scrutiny (which could force divestitures in some of its ad-tech monopolies), as well as recent heavy capex (they could have overspent, depending on how growth plays out). Not to mention, the shares have recently rebound hard (see earlier chart)—which could be a turnoff to some contrarian investors—although trading at 29x forward earnings is not unreasonable, considering the ongoing high revenue growth and significant competitive advantage (as described earlier).

Google Takeaways:

Despite the very strong rally over the last year, Alphabet is still priced reasonably considering its leadership in cloud, dominance in advertising, AI growth trajectory and powerful competitive advantages. This is a company that is positioned to grow faster than the rest of the economy, and the shares will likely remain a leader among Mag 7 stocks for years to come.

Ranking the “Mag 7” versus the S&P 493

With that Alphabet overview in mind, let’s consider how it compares to the other Magnificent 7 stocks and the rest of the S&P 500 (the “S&P 493”). For starters, I fully expect the Mag 7 to outperform the S&P493 (on average) in the years ahead, simply because Mag 7 stocks are growing their earnings faster.

Understandably, a lot of “contrarians” love to highlight that the biggest companies in the world don’t always stay the biggest (due to competition, see chart below).

However, considering the current market megatrend themes, the stocks’ ecosystem moats, and the higher earnings growth trajectory, I expect the S&P 493 to continue underperforming the Mag 7 for years into the future. That’s not to say no stock in the S&P493 will outperform any stock in the Mag 7 (that would be false, there will be select big winners in the S&P 493), however, on average, I’d still prefer to own the Mag 7 over the S&P 493.

Next let’s consider how the Mag 7 stocks rank compared to each other. This is my personal ranking and yours may be very different

*note: I am including 8 stocks in the ranking (including Broadcom (AVGO) which is now larger, by market cap, than several of the other traditional Mag 7 stocks).

8. Apple (AAPL)

Coming in at number eight in my ranking, Apple is one of the bluest of the blue-chip companies, with solid margins, healthy growth (see table above) and an incredible moat (iPhones are loved, customers are loyal and locked into the ecosystem, and the company’s R&D is efficient).

For a little overview, “Products” is Apple’s main business segment with the iPhone/Mac accounting for ~75% revenues and with ~40% of margins. Next is “Services (e.g App Store/iCloud) accounting for ~25% of revenues, but with an impressive ~70% margin.

From a growth standpoint, Apple is healthy (thanks to ramping AI integration into devices (courtesy of Google) and emerging markets), but Apple’s growth is significantly lower than other Mag 7 stocks (see our earlier table for comparison).

For example, Apple’s integration of Apple Intelligence (featuring on-device AI capabilities, enhanced Siri—with major upgrades like Gemini-powered features rolling out in 2026), and privacy-focused tools (across iPhone, iPad, Mac, and other devices) is expected to drive hardware upgrade cycles, boost services adoption, and accelerate revenue growth (by pressuring users to replace older models for full AI functionality).

Further, this AI push, combined with strong expansion in emerging markets (like India, Southeast Asia, Latin America, and the Middle East), is fueling Apple’s overall momentum (offsetting softer performance in areas like China) and positioning the company for sustained double-digit growth in key regions.

However, to put that all in perspective, Apple’s expected growth is still lower than other Mag 7 stocks. And Apple has been paying a dividend (with an incredible long-term growth rate) which is a sign of financial health, but also an indication of relatively lower growth (if they had higher growth then reinvesting in their own business would become a higher priority than paying a growing dividend).

Further risks include iPhone revenue dependency, ongoing regulatory scrutiny, and the potential for supply chain disruptions.

Overall, Apple is an impressive blue-chip dividend growth stock, but not as impressive as the other Mag 7 opportunities.

7. Broadcom (AVGO)

Broadcom (basically a semiconductor company) generates ~58% of its revenue from AI/chips (and does so with impressive ~70% margins). It also generates ~42% of its revenue from Software (which is basically VMware) with incredible ~90% margins.

Broadcom competes with Nvidia (ground zero for AI) in the AI infrastructure space but in a complementary way rather than a direct head-to-head manner. Specifically, while Nvidia dominates general-purpose GPUs for AI training and inference (with its unmatched CUDA ecosystem), Broadcom focuses on custom ASICs (e.g., designing TPUs for Google, accelerators for OpenAI and others) and high-performance networking that enable large-scale AI clusters, often as a cost-effective alternative for hyperscalers seeking to reduce dependency on Nvidia’s GPUs.

This basically positions Broadcom as a key challenger in inference and custom silicon, with growing deals (e.g. multibillion dollar OpenAI rollout in 2026-2029), but Nvidia retains a strong moat in programmable, high-performance compute (again, making the rivalry more about market share shifts than outright replacement).

And from a growth perspective, Broadcom has an impressive AI backlog, especially considering its VMware integrations and hyperscaler deals. Further, Broadcom has the advantages of: (1) custom AI silicon, (2) high-margin software, and (3) customer lock-ins.

Specifically, Broadcom’s high-margin software primarily comes from its Infrastructure Software segment (dominated by VMware products, especially for private/hybrid cloud management).

Further, VMware’s growth potential remains healthy with low double-digit revenue increases expected in FY2026 from VMware Cloud Foundation adoption and private cloud/AI workloads, though its Total Addressable Market (“TAM”) in enterprise virtualization/cloud management is mature (~$50-100B+ broader hybrid cloud market), with upside from AI-integrated private clouds amid enterprise on-premises demand.

And from a risk standpoint, Broadcom has significant client concentration, tariff exposure and margin pressures. For example, its top five end customers (primarily hyperscalers for AI/custom chips) accounted for ~40% of net revenue in FY2025 (per 10-K), and heavy reliance on just five major AI clients, increasing vulnerability to demand shifts or spending cuts.

Tariff exposure also poses a risk considering ~20% of its revenue is tied to China, exposing the company to U.S.-China trade tensions and potential retaliatory tariffs (though diversification efforts, such as partnerships in other regions, mitigate some impact).

Margin pressure is also a risk and arises from a growing mix of lower-margin AI system-level sales (including third-party components), with Q1 FY2026 gross margins expected to dip 100 basis points and trends potentially continuing throughout 2026 as AI revenue scales, despite high software margins (93%) providing an offset.

Overall, Broadcom is a massive juggernaut in the right place at the right time (cloud and AI megatrend beneficiary), but its TAM is limited, margins face pressures, and its overall earnings growth rate is expected to be lower than other Mag 7 stocks.

6. Amazon (AMZN)

Amazon is known for its online products marketplace (which generates 60% of the company’s total revenue from North America and another 25% from International), however this is low margin business, and the real profits come from Amazon Web Services (i.e. its cloud business) which generates only ~15% of total revenues, but does so with an impressive ~35% margin.

Amazon’s big competitive advantages are its enormous e-commerce scale and its AWS cloud moat, as well as its logistics network.

Amazon growth will come from several areas. For example, AWS AI workloads give the company a massive backlog (monetization ahead). Also, high-margin advertising revenue is expected to ramp (projected to exceed $70-80B annually with 20%+ growth from AI targeting and retail media). Further, Amazon has retail efficiency opportunities from automation/robotics and emerging AI agents. All of these position Amazon for earnings leverage, valuation re-rating, and potential outperformance in 2026 (particularly as AI investments begin yielding returns).

For some color, Amazon’s robotics and automation efforts in fulfillment centers (e.g. deploying over 1 million robots coordinated by AI models like DeepFleet) are projected to drive significant cost savings (e.g. potentially $7.5 billion annually by 2026 through reduced manual labor and efficiency gains like 25% faster processing), and thereby contributing to retail margin expansion and operating leverage.

However, Amazon’s shares have underperformed other Magnificent 7 stocks over the last year (2025) primarily due to heavy AI infrastructure capital expenditures (contributing to a plunge in free cash flow), slower-than-expected AWS growth (relative to rivals like Microsoft Azure and Google Cloud), tariff uncertainties (impacting retail operations), and an overall lack of fresh narratives for investors to get excited about (after prior themes like cost cuts and AWS recovery played out), and resulting in single-digit gains for Amazon (while peers like Alphabet and Nvidia soared in 2025).

Worth mentioning, from a risk standpoint, Amazon does face retail competition (Walmart (WMT), Target (TGT), Mercado Libre (MELI), to name a few). Also, antitrust probes and tariff impacts could weigh down the company.

Overall, Amazon has plenty of growth and catalysts, and the shares could be due for a re-rating higher, especially as they have lagged other Mag 7 AI leaders.

5. Alphabet (GOOGL)

As described earlier, and despite the very strong rally for the shares over the last year, Alphabet is still priced reasonably considering its leadership in cloud, dominance in advertising, AI growth trajectory and powerful competitive advantages.

4. Tesla (TSLA)

Perhaps most controversial of the Mag 7 (and not just because of the political forays of its leader (Elon Musk) into government efficiency and taking over social media platform Twitter/X), is Tesla. The volatility is huge as bulls and bears battle over valuing the current business (for example, as a car company it is extraordinarily overvalued) and a future business (the TAM of robotaxis and robots is enormous and excites many growth investors).

For some perspective, Tesla’s Automotive segment (electric vehicles) drives 80% of revenues (and with ~17% margins), while Energy/Storage drives 10% of revenue (and with 26% margins), and Services drives 10% of revenues (withg ~6% margins).

However, it is Tesla’s Full Self-Driving (”FSD”) autonomy software, which relies on extensive real-world data training and over-the-air updates, positions the company as a leader in unsupervised self-driving technology (with plans for robotaxi deployments and broader AI integration in 2026). This is what is getting growth investors excited, and could lead to more big gains for the shares.

Tesla is currently trading at premium valuations (for example 13.8x forward sales) as investors bet heavily that FSD could add potentially add massive market value (through recurring subscriptions, robotaxi services, and autonomous market dominance) despite the execution risks.

Further, Tesla’s Optimus humanoid robots (designed for tasks in factories, homes, and beyond) represent another pivotal shift in the company’s strategy toward AI-driven robotics, with production ramping up in 2026 (for example, aiming for millions of units annually at a targeted price of $20,000).

This robotics initiative is significantly driving Tesla’s current elevated valuation as investors bet on Elon Musk’s vision that Optimus could comprise the majoriity of the company’s future value through massive revenue from automation (although execution risks in this “prove-it” year could lead to more volatility).

Tesla’s advantages basically stem from its electric vehicle tech lead, its supercharger network, its CEO and arguably its “brand charisma.”

Risks for Tesla include EV competition and margin erosion, production delays (execution risk), regulatory risks and key man risk (Elon Musk can be a bit of a loose cannon at times).

3. Microsoft (MSFT)

If you are trying to optimize risk-versus-reward, a portfolio of stocks is typically much better than betting big on a single name, but if you had to bet on a single name, the pure combination of growth, profits and stability of Microsoft’s business (it’s one of only two companies with a triple-A credit rating—higher than the US government) makes Microsoft the opposite of Tesla in terms of speculative risk (i.e. Microsoft is a brilliant combination of steady, profitable, innovative, high growth).

For perspective, Microsoft generates ~40% of its revenue from its Productivity segment (Office products) and with extremely high margins. Next ~38% of revenue comes from its Cloud (Azure) business, also with strong (and improving) margins. Finally, Personal Computing (Windows/Xbox) contribute ~22% of revenue, albeit with a bit lower margins).

Microsoft’s competitive advantages stem from its expanding AI/cloud leadership position, its integrated ecosystem, and its very high recurring revenue model.

Growth will come from initiatives like accelerating Azure AI adoption (with 40% revenue growth and a $155B+ backlog), rapid Copilot enterprise scaling, Microsoft 365 price hikes (of ~16% in mid-2026), and truly massive AI infrastructure investments (including a $250B OpenAI deal through 2030 that could fuel a rebound by adding big additional revenue and proving monetization potential).

Despite the company’s powerful growth trajectory, Microsoft’s shares underperformed other Mag 7 stocks in recent months (late 2025 to early 2026) primarily due to investor concerns over escalating AI capital expenditures (i.e. reaching a record $35 billion in Q1 FY2026) which have eroded free cash flow and raised questions about near-term returns on AI investments. And this is compounded by Alphabet’s Gemini/AI advancements (pressuring Microsoft’s OpenAI partnership and broader Mag 7 valuation scrutiny), especially amid Microsoft’s slowing profit growth projections of 18% for 2026 (still quite high though!).

Specific risks include intense cloud competition (although there is room for multiple winners), antitrust regulations and cybersecurity threats (both real and reputational).

Nonetheless, all things considered, Microsoft is a dramatically more attractive business than most S&P 500 stocks, and that includes many of the Mag 7.

2. Meta (META)

Meta spent big on AI capex, and the market has punished the shares as a result. However, this is likely a short-term phenomenon (as Meta has experienced many times in the past) as CEO Mark Zuckerberg focuses on long-term growth rather than appeasing short-term Wall Street preferences.

For perspective, Meta’s main business segment (advertising from its Family of Apps) contributes ~98% of total revenues and with an incredible ~30%+ net margin). Reality Labs (Virtual Reality) contributes ~2% of revenues (and generates profit losses).

Meta’s main competitive advantage is its astounding 3.5B+ users, enabling highly-targeted ads and powerful network effects.

Looking forward, Meta growth will come from AI advertising tools, monetization of messaging and impressive user engagement.

In particular, growth initiatives (that could fuel a rebound relative to Mag 7 peers) include accelerating AI-powered advertising tools (like Advantage+ driving $60B+ annualized run-rate and 26%+ ad revenue growth), successful monetization of WhatsApp/Threads (through AI integrations and new channels), continued strong core ad momentum and potential cost discipline (e.g. Reality Labs cuts), and especially demonstrating profitable AI execution, thereby positioning Meta’s valuation (~21x forward earnings) as attractive (and for upside as sentiment shifts toward proven monetization).

Risks for Meta continue to include privacy regulations, advertising volatility (that ebbs ad flows with the economy) and metaverse losses.

As alluded to, Meta shares have underperformed other Mag 7 stocks in recent months (late 2025 into early 2026) primarily due to investor concerns over massive capital expenditures tied to aggressive AI infrastructure and data center builds (which have pressured free cash flow, sparked fear of delayed returns on investment, and triggered a post-earnings sell-off as shares are still down ~17% from August 2025 highs).

Overall, however, these selloffs are par for the course for Meta, as CEO Mark Zuckerberg continues to focus on long-term growth rather than short-term market expectations.

1. Nvidia (NVDA)

Nvidia is ground zero for the great datacenter cloud migration and now the AI revolution as surging demand for training and inference in generative AI clears a continuing path for massive high growth. And what makes this opportunity particularly spectacular (besides its already massively impressive scale) is the shares remain relatively inexpensive (particularly after the share price has been sideways in recent months).

For starters, Nvidia’s Data Center Segment has grown to 90% of total revenues with insane 75% margins. It’s once dominant gaming segment generates 8% of revenues (small only relative to Data Center) and with lower margins.

From a competitive advantage standpoint, Nvidia’s CUDA software creates an extremely powerful moat (as the industry had been trained over nearly two decades to use it, and switching costs for users are high (steep/long learning curve). And the network effects (as AI grows) makes it even harder for competitors (such as AMD) to overcome (even as hardware alternatives emerge).

From a growth standpoint, Nvidia’s TAM in AI-driven data center semiconductors (and related infrastructure) is truly massive and rapidly expanding. Estimates for the broader AI chip and data center market are in the hundreds of billions annually, and with projections for $400B+ by 2027 for data center AI chips. Nvidia basically has a $3-4 trillion multi-year AI infrastructure opportunity (fueled by surging demand for training and inference in generative AI, while its core data center segment alone drives explosive growth amid the ongoing AI megatrend supercycle).

The main risks for Nvidia are basically: (1) the AI megatrend/supercycle is overblown (which seems unlikely based on hyperscaler capex), (2) the company’s main customers have already overspent, and (3) supply shortages (which can disrupt and delay deliveries).

From a customer concentration standpoint, Nvidia does disclose that two anonymous clients drive ~39% of total revenue:

“Customer A” accounts for 23% of total revenue, and is likely Foxconn/Hon Hai Precision, due to its dominant scale (projected as the world’s top server vendor in 2025 by Omdia), close Nvidia partnerships (e.g., Blackwell GPU manufacturing), and explosive AI server growth (up 17% profit in Q3 2025 from Nvidia-related demand). Foxconn basically assembles ~24% of Nvidia GPU servers historically and leads in Asia’s data centers.

“Customer B” accounts for 16% of revenue, and is likely Quanta Computer (or its QCT arm), as a key ODM with ~15-22% historical share of Nvidia servers, 100%+ revenue growth in AI-optimized systems in 2025, and deep integration for GB200/Blackwell racks.

From a valuation standpoint, Nvidia still trades at only ~24x forward earnings, which is quite inexpensive considering revenue is growing at over 50% per year, earnings are expected to grow at a rate of over 30% for the next five years, and the company’s forward PEG ratio (price/earnings to growth) is only 1.0x (more attractive than other Mag 7 stocks).

Overall, despite Nvidia’s impressive rally over the last decade, it continues to have massive room to run and the shares trade at a very reasonable price. Considering it is now such a large part of the entire US stock market (more than 6%), it would be risky to not own any Nvidia, and it would be prudent to own a significant amount of it in your portfolio—depending, of course, on your own personal situation and goals.

The Bottom Line

US stocks have been on a multi-year rally of strong returns, and there is certainly no guarantee that 2026 will be the same. However, over the long-term, earnings is expected to continue to grow for the Magnificent 7 (and at a faster pace than the S&P493) and that bodes well for stock prices (particularly those trading at reasonable share prices).

Some Mag 7 stocks have recently performed better than others (such as Alphabet), but that doesn’t mean you need to sell them (that would be like benching Michael Jordan because he just won the MVP), especially considering valuations remain quite reasonable relative to growth.

Other Mag 7 stocks (Nvidia, Meta and Microsoft) have not performed as well (in terms of share price gains) in recent months, but their business have performed well (despite short term concerns over heavy capex and noise in general). The reality is these stocks continue to benefit from massive long-term megatrends and market supercycles (as described in this report).

I am not saying every Mag 7 stock will outperform every S&P493 stock (there will be some extraordinarily impressive returns from some S&P 493 stocks). But on average, I do expect the Mag 7 to keep outperforming the S&P493, and some Mag 7 stocks will likely perform better than others (as described in this report). I have positioned my own personal investment portfolio accordingly (and may make some small-ish tweaks in the coming days.

Overall, disciplined, goal-focused, long-term investing continues to be a winning strategy. And you need to be smart and do what is right for you.

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