Is it too late to consider buying the stock market’s ‘Magnificent 7’ for an ISA or SIPP?

Over the last two years, the bulk of the stock market’s gains have been driven by just seven stocks – Apple, Microsoft, Nvidia, Meta Platforms, Amazon (NASDAQ: AMZN), Alphabet (Google), and Tesla. Given their incredible returns, this group of stocks has been dubbed the ‘Magnificent Seven’.

Now, while these stocks are very popular (I own five out of the seven), there are still plenty of British investors who don’t own them. This begs the question – is it too late to consider buying them for a Stocks and Shares ISA or a Self-Invested Personal Pension (SIPP)?

Huge returns

There’s no doubt that these stocks have had a great run in recent years. Some of their returns are quite astonishing, especially when you consider these are some of the largest companies in the market.

Now, not all of these gains are fully justified, in my view. But some definitely are. Today, we’re in the midst of an incredible technology revolution. And many of these companies are at the heart of it.

Apple, for example, has its iPhones in the hands of over 1.5bn people worldwide. Via these smartphones, users can do their banking, shop online, listen to podcasts, FaceTime friends, and more.

Amazon meanwhile, operates one of the world’s largest online shopping platforms. Today, over 300m people globally shop on its platform.

Then there’s Nvidia, which develops chips designed to power AI applications. Without its technology, we wouldn’t have tech like ChatGPT.

Ultimately, most of these companies play a crucial role in our lives. I personally use products from six out of the seven on a daily basis.

It’s not too late to consider getting in

Looking ahead, I expect all seven businesses to continue growing as the world becomes more digital. With exposure to high-growth industries like AI, cloud computing, video streaming, digital health, e-commerce, social media, video gaming, and digital advertising, there could be a lot more to come from these seven brilliant companies.

That said, I don’t see all as Strong Buys today. That’s because some have quite high valuations relative to their growth potential.

Tesla’s P/E ratio, for example, looks quite stretched to me currently. So I’m not in a rush to buy that stock (that’s one I don’t own).

My favourite Mag 7 stock today

My top pick of the group today is Amazon. It’s lagged the other six in recent years. But it’s now playing catch up. And I reckon it has tons of long-term potential.

As for why it’s suddenly playing catch up, there are a few reasons. One is that after a few years of focusing on efficiency, Amazon’s back on a growth drive again. For example, it recently announced the launch of powerful new AI chips. These are designed to be an alternative to Nvidia’s GPUs.

At the same time, the focus on efficiency has led to a huge jump in profitability. This year, Amazon’s earnings per share are expected to come in at $6.19 – 113% higher than in 2023.

Of course, there are no guarantees the stock will do well in the years ahead. It’s priced for growth and if growth slows due to a slowdown in consumer spending (e-commerce) or business spending (cloud), the share price could be volatile.

Taking a five-year view though, I reckon Amazon shares will deliver strong returns.

This post was originally published on Motley Fool