Key Points
The Magnificent Seven stocks are tech-adjacent corporations so named because they are leaders in their respective industries and have posted exceptional returns over the long run. The group includes Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Meta Platforms (NASDAQ: META), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), and Tesla (NASDAQ: TSLA). Several of them haven’t performed particularly well this year, but many analysts remain bullish on their prospects, with most setting average price targets that imply reasonable upside from current levels. The two most undervalued companies in this group — according to Wall Street — are Microsoft and Nvidia. Should investors follow The Street’s advice and buy shares in both companies?
1. Microsoft
Microsoft’s average 12-month price target (according to Yahoo! Finance) is $559.93, while its current price is about $385. For those counting at home, that implies an upside of about 45%. Interestingly, even the company’s lowest target of $400 is above its current stock price. Wall Street clearly thinks Microsoft is deeply undervalued, but many investors are skeptical. One argument against the company is that artificial intelligence (AI) will replace many of its products. But what we have seen so far suggests otherwise.
Microsoft is evolving with AI, incorporating it into its services. That could make it a stronger company. And for what it’s worth, Microsoft is already capitalizing on its AI-related work. The company’s AI business is growing fast and exceeded an annual run rate of $37 billion in its latest period (the third quarter of its fiscal year 2026, ending March 31), up 123% from the year-ago period.
That still represents a fairly small percentage of Microsoft’s annual revenue, but at the pace at which this segment is growing, it could help the company maintain solid momentum over the medium term.
Meanwhile, Microsoft’s Azure business is also firing on all cylinders, posting a 40% year over year revenue increase in its latest quarter. The tech giant ended the period with a cloud backlog of $627 billion, up 99% year over year. The business isn’t in trouble at all, and given Microsoft’s deep, long-standing enterprise relationships, innovative capabilities, and significant free cash flow of almost $73 billion over the trailing-12-month period, it is well-positioned to continue riding the AI and cloud computing tailwinds as it expands and transforms its products to make them even more valuable to its clients.
Microsoft may not quite hit the $559.93 average price target Wall Street is hoping for within a year — that’s a tough ask. However, the company’s long-term outlook remains intact.
2. Nvidia
Few companies have cashed in on the ongoing AI revolution as much as Nvidia. But some investors apparently think the company’s impressive run has come to an end. Wall Street disagrees. Nvidia’s price target is currently $301.62, implying an upside of almost 43% from current levels. The bears might argue that Nvidia will face more competition in the GPU (Graphics Processing Unit) market it dominates, as many companies seek to develop custom AI chips to cut costs and reduce their reliance on Nvidia’s hardware.
But there are also strong reasons to remain optimistic about Nvidia’s future. The tech leader should continue to benefit as AI infrastructure spending expands. And we have plenty of signals from the biggest spender that this is exactly what will happen. Alphabet recently announced an $80 billion equity capital raise to fund its AI spending, and the company said the $180 billion to $190 billion in capex it will spend this year will increase significantly in 2027.
Further, even as many companies rely increasingly on custom AI chips, they likely won’t stop buying racks of Nvidia’s GPUs. Corporations such as Alphabet, Amazon, and Tesla have suggested as much. Finally, Nvidia is tapping into a new growth opportunity. As agentic AI systems become more prevalent, demand for CPUs (Central Processing Units) will increase. Nvidia launched its Vera CPU for this reason.
It expects $20 billion in stand-alone CPU revenue through the end of the year, and a $200 billion addressable market. Nvidia could ride this opportunity while remaining the leading GPU company, given its CUDA ecosystem, which provides it with a wide moat from switching costs. So, Nvidia has plenty of market-beating potential left, even if it doesn’t match The Street’s target within a year.
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Prosper Junior Bakiny has positions in Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
