Nasdaq Correction: 2 "Magnificent Seven" Stocks Down 19% and 21% You'll Regret Not Buying on the Dip

The Nasdaq-100, a benchmark for the world's largest nonfinancial companies listed on the Nasdaq stock exchange, has delivered a staggering 343% return over the past decade. This performance is largely due to its high concentration of tech giants, which have outpaced the broader market. However, the Nasdaq-100 is currently in correction territory after a 13% decline from its recent peak. This volatility has led to significant drops in the stock prices of two of the "Magnificent Seven" companies: Meta Platforms and Alphabet, which have declined by 19% and 21% respectively from their record highs. But are these declines a buying opportunity or a sign of deeper issues?



Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, has seen its stock price drop despite generating a record $164.5 billion in revenue last year, up 22% compared to 2023. Its earnings per share (EPS) soared by 60% to $23.86, placing its stock at a price-to-earnings ratio (P/E) of 24.7, making it the second-cheapest Magnificent Seven stock; only Alphabet is cheaper. Meta's focus on engagement through AI in its recommendation engines and the launch of Meta AI, a popular chatbot, positions the company for potential leadership in AI. CEO Mark Zuckerberg's confidence in the upcoming Llama 4 version of its large language models (LLMs) suggests that Meta AI could become one of the industry's "smartest" chatbots, attracting new users and creating more opportunities to generate revenue.

Alphabet, the parent company of Google, YouTube, and Waymo, has also seen its stock price decline. However, Alphabet's AI Overviews, which appear at the top of Google Search results, combine text, images, and links to third-party websites to provide a holistic, AI-generated response. This innovation ensures that Google maintains its 90% market share in search and monetizes just as well as the traditional search format. Alphabet's Gemini family of LLMs powers these Overviews, positioning the company at the forefront of AI innovation. The company's strong financial performance, with over half of its total revenue generated by Google, and its investment in AI ensure that Alphabet remains a dominant player in the tech industry.

Given these factors, the recent declines in Meta Platforms and Alphabet's stock prices present a long-term buying opportunity for investors. Both companies have strong financial growth, leadership potential in AI, and innovative products that position them for future success.



The recent declines in Meta Platforms and Alphabet can be attributed to several key factors, which also reflect broader market trends. The Nasdaq-100's high concentration of tech stocks makes it particularly sensitive to market fluctuations. The Federal Reserve's recent rate-cutting cycle, which began in September 2024, is aimed at stimulating economic growth. However, this also introduces volatility as investors adjust to changing interest rates. The S&P 500 and Nasdaq Composite have historically performed well during the first 12 months of cutting cycles, but the current environment is marked by elevated valuations and sticky inflation, which could lead to worse-than-expected returns.

Company-specific factors also play a role. Meta Platforms has seen a 19% decline from its record highs. This is partly due to the company's focus on engagement rather than new sign-ups, as almost half the world's population already uses its apps. The company is investing heavily in AI to enhance user engagement, but this transition period can be challenging. For instance, Meta AI, powered by the Llama family of large language models, had over 700 million monthly active users at the end of 2024, but the company is still working on improving these models to compete with other AI leaders like OpenAI.

Alphabet has experienced a 21% decline from its record highs. This is partly due to the threat posed by AI chatbots to Google Search's dominance. Alphabet has responded by launching AI Overviews, which combine text, images, and links to provide holistic AI-generated responses. However, the transition to this new format and the potential impact on revenue are sources of uncertainty for investors.

Valuation concerns also play a role. Both Meta Platforms and Alphabet are trading at relatively attractive valuations compared to other Magnificent Seven stocks. Meta Platforms has a price-to-earnings (P/E) ratio of 24.7, making it the second-cheapest among the Magnificent Seven. Alphabet is even cheaper. However, the broader market trends show that valuations are elevated even when accounting for strong future earnings growth. The S&P 500 currently trades at 22 times forward earnings, a premium to its 10-year average of 18.1 times forward earnings. This suggests that investors are cautious about high valuations, which could lead to further declines if earnings do not meet expectations.

In summary, the recent declines in Meta Platforms and Alphabet are driven by a combination of market volatility, economic uncertainty, company-specific challenges, and valuation concerns. These factors are reflective of broader market trends, where elevated valuations and economic uncertainties are leading to cautious investor sentiment. However, the long-term prospects for these companies remain strong, and the recent declines present a potential buying opportunity for investors.