2 "Magnificent Seven" Stocks Down 19% and 25% You'll Wish You'd Bought on the Dip

The stock market has been on a rollercoaster ride in 2025, with the S&P 500 index down nearly 12% from its recent all-time high. This volatility has created a unique buying opportunity for long-term investors, particularly for those looking to scoop up some of America's highest-quality stocks at a discount. Among the "Magnificent Seven" stocks—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla—two stand out as particularly attractive: Microsoft and Amazon. These tech giants have seen significant declines from their all-time highs, with Microsoft down 19.7% and Amazon down 25.8%. But is this a buying opportunity or a trap?



The Case for Microsoft

Microsoft, founded in 1975, has been a staple in the tech industry for decades. Its early products like Windows and Word are still used by over 1 billion people globally. But Microsoft isn't resting on its laurels. The company is now applying its vast software expertise to develop AI products, investing around $14 billion in ChatGPT creator OpenAI since 2019. This investment has paid off in the form of Copilot, an AI assistant integrated into Microsoft's legacy software products like Windows, the Edge internet browser, and the Bing search engine. Copilot is also available for the 365 productivity suite, which includes Word, PowerPoint, and Excel, for an extra monthly subscription fee.

The financial opportunity here is enormous. Organizations around the world pay for around 400 million 365 licenses for their employees, and all of them are candidates for the Copilot add-on. As of the fiscal 2025 second quarter, organizations that bought Copilot for 365 during its first quarter of availability 18 months prior had already expanded their licenses tenfold. Moreover, their employees were actively using Copilot 60% more frequently than they were in the fiscal 2025 first quarter just three months earlier.

Turning to Microsoft's Azure cloud platform, the company said revenue relating to AI services soared by a staggering 157% year over year during the second quarter. Azure AI offers businesses the computing capacity they need to develop their own AI software, via Microsoft's enormous centralized data centers, which are filled with advanced chips from suppliers like Nvidia. It also offers a suite of ready-made large language models (LLMs) from leading third parties like OpenAI, which businesses can adapt for their own purposes to accelerate development.

Following the nearly 20% decline from its all-time high, Microsoft stock now trades at a price-to-earnings (P/E) ratio of 30.2. It's the cheapest valuation since mid-2023, and it's also an 8.9% discount to its 10-year average P/E ratio of 33.2. This presents a relatively rare opportunity for investors to scoop Microsoft stock up at a discount. They might be glad they did when they look back on this moment in a few years, considering the lightning-fast growth of its AI products.

The Case for Amazon

Amazon is the world's biggest e-commerce company, but it also dominates the cloud computing industry through its Amazon Web Services (AWS) platform. AWS is aiming to lead the three core layers of the AI race over the long term: infrastructure (data centers and chips), large language models, and software. At the first layer, AWS designed its own data center chips called Trainium (for AI training) and Inferentia (for AI inference), which can reduce costs by up to 40% for developers compared to using chips from suppliers like Nvidia. At the middle layer, the AWS Bedrock platform offers access to over 100 ready-made LLMs from third parties like OpenAI.

Amazon's AWS platform is even larger (by revenue) than Microsoft Azure, which sits in second place. This dominance positions Amazon as a key player in the AI race, with a suite of ready-made large language models and a robust infrastructure to support AI development.



Potential Risks and Rewards

The recent sell-off in tech stocks, including Microsoft and Amazon, has been exacerbated by regulatory pressures and geopolitical tensions. For example, President Trump's tariff threats have spooked investors and driven some to flee stocks for safe havens like gold and Treasurys. The Magnificent Seven stocks have been hit particularly hard this year by mounting uncertainty on Wall Street and Main Street. The release of a surprisingly efficient open-source AI model from Chinese startup DeepSeek prompted a sell-off in late January. The group has struggled to bounce back amid growing uncertainty about the economic impact of President Donald Trump’s tariffs.

However, the underlying strengths of these firms remain intact. Microsoft's AI products, such as Copilot, have seen enormous financial opportunities, with organizations expanding their licenses tenfold and employees using Copilot 60% more frequently. Similarly, Amazon's AWS platform is aiming to lead the three core layers of the AI race, with its own data center chips and a suite of ready-made large language models. These innovations position these companies for long-term growth and potential market resurgence.

In conclusion, the recent decline in Microsoft and Amazon stocks presents a unique buying opportunity for long-term investors. While there are potential risks associated with this strategy, the underlying strengths of these firms and their leadership positions in hypergrowth industries like AI make them attractive candidates for a comeback. Investors who can see beyond the immediate shadows and into the potential light may find that buying these stocks at a discount is a wise move.