1 "Magnificent Seven" Stock Investors Should Buy on the Dip Without Hesitation (Hint: It's Not Nvidia)

Earnings season is in full swing. Investors will be watching closely for updates on how their companies have been performing. Most of the "Magnificent Seven" group will be providing financial results.

Due to their dominance in their respective industries, these tech-forward businesses are probably at the top of many investors' wish lists. The problem, however, is that they usually trade at steep valuations.

But right now, you're in luck. Here's one Magnificent Seven stock you should buy on the dip without hesitation. And just so you know, it's not Nvidia.

Disappointing Wall Street

At a market cap of $2.3 trillion, Alphabet (GOOGL 0.61%) (GOOG 0.57%) always has the spotlight on it. So, when the company's shares dipped 7% on Feb. 4 following the release of its fourth-quarter 2024 financial update, there must have been some information that disappointed the analyst community.

Alphabet's revenue increased 12% year over year to $96.5 billion in the fourth quarter. To be clear, that type of jump is definitely commendable, but investors weren't pleased, even though it was only below expectations by about $90 million. I'd guess the bigger sales miss of the important Google Cloud segment didn't help instill confidence.

But the business did beat expectations on the bottom line. Diluted earnings per share (EPS) soared 31% to $2.15 in Q4. In the past decade, this metric has climbed at a faster rate than revenue, showcasing Alphabet's impressive ability to scale up in a very profitable manner.

Perhaps the market was most surprised by the company's planned capital expenditures in 2025 of $75 billion. This was way ahead of the consensus estimate of $59 billion. Alphabet isn't letting up on the gas pedal when it comes to spending.

"As we expand our AI efforts, we expect to increase our investments in capital expenditure for technical infrastructure, primarily for servers followed by data centers and networking," CFO Anat Ashkenazi said on the Q4 2024 earnings call.

Not much to complain about

Because companies are required to provide quarterly updates, it's very easy to get caught up with what happens in a three-month period and overreact. Successful investors are able to zoom out and focus on the big picture. By doing this, we'll easily see how wonderful of a business Alphabet is.

Even at its massive size, it still has meaningful growth potential. The global digital ad market is projected to double in size and reach $1.2 trillion in revenue in 2030. With top market share, Alphabet is poised to grab a large chunk of this thanks in large part to the popularity of its internet properties.

The company is financially sound, to say the least. Alphabet generated a whopping $99 billion of annualized free cash flow in the fourth quarter. This was after the sizable capital investments it made in growth initiatives. That cash helped fund $62.2 billion in share buybacks and $7.4 billion in dividends in the last 12-month period.

And there's not much financial risk when owning this company. The balance sheet is in excellent shape, with cash, cash equivalents, and marketable securities that are $84.8 billion in excess of total long-term debt.

Time to make a move

The market doesn't always give investors the opportunity to buy world-class businesses at decent prices. But that is precisely what's happening right now.

Alphabet shares are 10% off their peak, trading at a forward price-to-earnings ratio of 20.6. This represents a discount to the overall S&P 500 index, a situation that doesn't seem warranted.

According to consensus analyst estimates, Alphabet's EPS is projected to increase at a compound annual rate of 13.6% over the next three years. This healthy outlook justifies paying what is a below-market valuation multiple.

It's time to make a move and take advantage of the current dip to buy this Magnificent Seven stock.