Running All Seven Mag 7 Stocks Through the Same Model: Only Two Came Out Cheap

With the Magnificent 7 now being called the Lag 7, I decided to skip the headlines and run the numbers. All seven went through the same framework: revenue growth over the next ten years, net and free cash flow margins, an exit P/E ten years out, and a 9% required return with no margin of safety applied. The inputs differ by company; the method does not.

One thing to say up front: 9–10% is not the return I'm targeting. That's roughly the market average. If 9–10% is all you want, buy a low-cost ETF, dollar-cost average, and never think about it again. The reason to pick individual stocks is to beat that number. What the midpoint below represents is an estimate of what the market should think the company is worth.

The cheap side: Microsoft and Meta

Microsoft came out most attractive. Market cap of $2.9 trillion against an enterprise value of $3.07 trillion puts net debt around $200 billion. Free cash flow was $73 billion last year and has averaged $67 billion annually over five years. But last year's net income was $125 billion. I remember when Microsoft's entire revenue was less than $125 billion.

That gap shows up as a 23x P/E against a 40x price-to-free-cash-flow. The margin trajectory is the real story: 33–34% net margin over ten years, 37% over five, nearly 40% last year alone. The dividend yields about 1%, which works out to roughly $25 billion a year in absolute dollars.

My inputs: revenue growth of 7/10/13%, net margins of 34/37/40%, and an exit P/E of 20/23/26. Output: $360 low, $550 mid, $822 high. Against today's $390, the midpoint scenario implies roughly 13.5% annualized, before any balance sheet adjustment.

Meta is next. Market cap of $1.69 trillion, about $70 billion of net debt, and $48 billion of free cash flow last year — it could clear that debt with under two years of cash generation. Gross margin is 82% and return on invested capital sits firmly in high-quality territory. What surprises me is that despite an 82% gross margin and rapid revenue growth, net margin has been roughly flat for a decade. My read is that they keep spending to raise product quality along the way.

Inputs: revenue growth of 7/10/14%, net margins of 29/31/33%, free cash flow margins of 28/30/32%, exit P/E of 18/22/26. Output: $540–560 low, roughly $850 mid, $1,400–1,450 high. Against $661 today, that's about 12% annualized.

I'd argue my inputs may be too conservative — Meta has actually delivered low-30s margins on average over the past decade. I've made the longer case in why Meta is the only real Mag 7 opportunity.

The judgment calls: Amazon, Alphabet, Nvidia

Amazon landed with its midpoint essentially at the current price — $107 low, $250 mid, $485 high, with the stock at $250. No margin of safety. Inputs were revenue growth of 4/8/12%, net margins of 8/12/16%, and an exit P/E of 20/23/26.

I'll be honest: I missed Amazon for years. I didn't understand its ability to reinvest capital and earn high rates of return on it. I was stuck on "this has to pay off at some point," and by the time it clearly did, I was late. That's why I've never owned it. I treat that as a principle rather than only a regret: buy the businesses that make sense to you. You'll miss the ones that don't, and that's fine, as long as you do better on the ones you actually understand.

Alphabet has the strongest raw numbers of the group. Market cap of $4.3 trillion against roughly $100 billion of net debt, comfortably covered by $64 billion of free cash flow last year. Net income of $160 billion is larger than Microsoft's. Net margin has gone 27% over ten years, 29% over five, 38% last year, with revenue growth of 18%, 16%, and 14% over ten, five, and three years. This is a company that owns the number-one search engine in the world and the number-two (YouTube).

My inputs: revenue growth of 7/9/13%, net and free cash flow margins of 28/30/32%, exit P/E of 20/23/26. Output: $240 low, $330 mid, $530 high. And here's the honest caveat — last year's margin was 38% and I plugged in 28–32%. If margins hold anywhere near recent levels, my midpoint is simply wrong on the low side. That gap is exactly where the art of investing lives.

Nvidia has the widest spread of any name here. Market cap of $5.06 trillion, with an enterprise value below market cap — meaning more cash on hand than debt. Return on invested capital of 40–45%, net margins of 52% over ten years, 54.5% over five, 63% last year, and gross margin near 75%. Last year: $160 billion of net income and $120 billion of free cash flow. While the other six spend that $700 billion, Nvidia sells the shovels.

The problem is the growth rate. Revenue grew 48% annually over ten years, 67% over five, and 114% over three, and analysts model revenue going 5x from $213 billion to $1 trillion within four to five years. I can't underwrite a $5 trillion company on that trajectory. So I used revenue growth of 10/15/25%, net margins of 35/45/55%, and an exit P/E I deliberately set higher at 20/24/28 to give it a premium. Output: $114 low, $250 mid, $738 high.

My conservatism may cost me here, and I accept that. But I'd also note that Michael Burry's questions about Nvidia's balance sheet — the circularity of investing in companies whose spending returns as Nvidia revenue — deserve real engagement. Dismissing him with "he's predicted forty of the last three bear markets" is a cute line about a man who actually read every individual loan file during the subprime era. At minimum, understand the argument before you wave it off.

The expensive side: Apple and Tesla

Apple's situation differs from the other six. It isn't the one spending wildly on AI; it's lagging for its own reasons — slower growth and persistent questions about China.

Market cap of $4.7 trillion against a $4.9 trillion enterprise value means roughly $200 billion in net debt. Last year: $130 billion of free cash flow against $122 billion of net income — more free cash flow than earnings, precisely because it isn't playing the AI capex game. Return on invested capital exceeds 50%, and gross margin has climbed substantially from the sub-40% range as the higher-margin subscription business has grown. The business itself is hard to fault.

The price is another matter: 36x free cash flow and 38x earnings. Twelve or thirteen years ago, when Apple traded at 9–10x earnings, I thought it was a genuine value play. The only question was whether the iPhone and iPad would stay dominant, and in 2012 that was far from obvious. Dominance has since been proven — and the multiple is now four times higher.

Inputs: revenue growth of 4/7/13%, net margins of 26/27/28%, exit P/E of 21/23/25. Output: $160 low, $230 mid, $400 high. Against $317 today, even the midpoint scenario delivers only about 5% annualized. For me, that's too rich.

Tesla is its own animal. Start with a fact worth remembering: Tesla is currently a car company. Even if it merged with SpaceX today, over 70% of revenue would still be cars.

Market cap of $1.4 trillion, and no debt — for a car company that genuinely deserves credit. But look at the 19% gross margin. Did any of the software-like businesses above show anything close to 19%? No. In fairness, a 10% five-year net margin is not typical of a car company, so they're clearly doing some things better than peers.

The issue is price. $7 billion of free cash flow against a $1.4 trillion market cap is 200x free cash flow, with a P/E of 360. Revenue growth has gone 37% over ten years, 22% over five, and 4.5% over three. Companies slow down. That's what those three numbers are telling you.

So I deliberately went generous. Revenue growth of 10/20/30%, net margins raised from an initial 8/11/14% up to 12/18/24%, and an exit P/E pushed to 18/22/26. Those first lines are not what I believe — they're there to show what happens even when you stretch. Output: $100 low, $360 mid, $1,160 high, with the stock at $400. Even with inflated inputs, the midpoint doesn't reach the current price. I reached the same conclusion in Tesla is still a car company.

Of course, if you told me with certainty that Tesla's free cash flow starts at $7 billion and doubles every year for the next thirty, this is cheap. Twenty years, still cheap. Fifteen, very cheap. The question is where it stops being cheap — and answering that is the art.

All seven at a glance

Company	Market cap	Low case	Mid case	High case	Versus today
Microsoft	$2.9T	$360	$550	$822	$390 now → ~13.5% expected return
Meta	$1.69T	$540–560	$850	$1,400–1,450	$661 now → ~12% expected return
Alphabet	$4.3T	$240	$330	$530	Margin inputs conservative; upside skew
Nvidia	$5.06T	$114	$250	$738	Widest dispersion by assumption
Amazon	$2.7T	$107	$250	$485	$250 now → no margin of safety
Apple	$4.7T	$160	$230	$400	$317 now → ~5% expected return
Tesla	$1.4T	$100	$360	$1,160	$400 now → fails even generous inputs

What this table actually taught me

First, treating the Magnificent 7 as one decision is useless. Identical methodology produced expected returns ranging from 5% to 13.5%. The group's premium compressing from 30% to 10% is a starting observation — that discount is distributed extremely unevenly.

Second, assumptions dominate outputs. Whether you model Alphabet at a 28% or 38% net margin completely changes the answer. That's why I care less about "what is this worth" and more about "what am I assuming, and what happens if I'm wrong." It's also why I never look at a single number without the low and high cases beside it.

Third, a green result is a research signal, not a buy signal. If the current price sits below your midpoint, you've earned a reason to dig deeper into the business. If it sits above even your optimistic case, stop spending time on it. A great story becomes a bad investment at the wrong price.

Right now the market is dumping these seven at the fastest pace in four years. When that happens, most people do one of two things: panic sell and lock in the loss, or freeze while the opportunity walks past. I'd suggest a third option — ignore the noise and run the actual numbers. As the table shows, several of these told a very different story than the headlines did.