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Why I Took Advantage of a 20% Sell-Off to Buy More of This “Magnificent Seven” Stock.

The Nasdaq has hit some turbulence this year. It’s currently down more than 10% from its recent peak, which puts it in correction territory. Some stocks have sold off even more.

I actually like it when the market takes a breather because it allows me to buy some high-quality stocks at much better prices. I recently did just that, buying more shares of technology titan Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). Here’s why I couldn’t resist the opportunity to buy more shares of this “Magnificent Seven” stock, which has tumbled 20% from its recent peak.

Alphabet is one of seven leading tech companies dubbed the Magnificent Seven due to their strong growth prospects and stock price performance in recent years. Even with the recent decline, Alphabet shares are up more than 150% over the past five years, easily outperforming the S&P 500 (more than 90% gain).

One of the biggest factors driving my decision to add to my Alphabet position is its valuation:

GOOG PE Ratio (Forward) data by YCharts.

As that chart shows, it has the lowest forward price-to-earnings (P/E) ratio among the Magnificent Seven. Its forward P/E ratio of a little more than 18 times is also cheaper than the broader market. The Nasdaq-100 trades at over 25 times forward earnings even after its correction, while the S&P 500 sells for more than 21 times its forward P/E.

That’s a bargain for such a high-quality growth stock. Its revenue rose 15% last year to $350 billion, while its net income surged more than 35% to $100 billion. That’s a robust growth rate for a company as big as Alphabet.

Artificial intelligence (AI) has been a big factor driving the surging valuations of Magnificent Seven stocks in recent years. Alphabet is capitalizing on that same growth catalyst. CEO Sundar Pichai commented on its AI-driven growth catalysts in the company’s fourth-quarter earnings press release:

Q4 was a strong quarter driven by our leadership in AI and momentum across the business. We are building, testing, and launching products and models faster than ever, and making significant progress in compute and driving efficiencies. In Search, advances like AI Overviews and Circle to Search are increasing user engagement. Our AI-powered Google Cloud portfolio is seeing stronger customer demand, and YouTube continues to be the leader in streaming watchtime and podcasts.

Its AI investments are clearly having an impact. Google Cloud revenues surged 30% in that quarter to $12 billion, led by growth in AI infrastructure and generative AI solutions.


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