Is Now the Time to Buy the Two Worst-Performing Stocks of the Magnificent Seven?

Big tech stocks have been struggling lately as investors increasingly question whether investments in artificial intelligence (AI) will pay off and whether valuations have simply become too high. Fears of an impending recession are also a reason why markets appear to be under pressure.

Most ‘Magnificent Seven’ Stocks Underperform S&P 500 and its 9% gains this year. While shares of Nvidia, Meta-platformsAnd Alphabet have grown by more than double digits this year, the rest are lagging. The two worst-performing stocks in the The Magnificent Seven are Microsoft (NASDAQ: MSFT) And Tesla (NASDAQ: TSLA).

Is now a good time to add these stocks to your portfolio?

1. Microsoft

Microsoft has been one of the biggest AI stocks to own over the past two years, as it invested billions in OpenAI and enhanced its Office suite with AI features. So expectations are high for the computer maker. While the company beat expectations in its latest quarterly report, investors may have expected much more.

Sales for the period ending June 30 totaled $64.7 billion, up 15% from a year earlier. That was slightly above the $64.4 billion analysts had expected. Adjusted earnings per share of $2.95 were also slightly above the $2.93 analysts had expected.

While Microsoft is a thriving company and could benefit from AI growth, the bar is set high, as it is one of the most valuable companies in the world, trading at 34 times earnings. For Microsoft to maintain this lofty valuation, it may need to do more than just beat earnings. While its 7% earnings this year aren’t bad, for the company to perform at a high rate, it will likely need to generate a lot more growth. The big test could be how strong demand is for its new AI-powered PCs, and whether that can serve as a catalyst for the company.

In the long term, Microsoft may still be a great stock to own, given its vast growth opportunities in PCs, gaming, and cloud computing. The company is solid, and while its valuation may seem a bit high, as the company grows, so will its earnings, which will improve its valuation. If you’re looking for a stock you can buy and hold for decades, Microsoft may be a good addition to your portfolio today.

2. Tesla

The worst-performing stock in the Magnificent Seven is Tesla. Without its recent rally, it would have lost much more than the 20% it is currently suffering. That’s how bad the year has been for the electric vehicle (EV) maker.

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Consumer demand for Tesla’s electric vehicles has not been as strong as it has been in the past, which can be attributed in part to the poor economy as well as increased competition. Tesla has been cutting prices in response to other electric vehicle manufacturers offering cheaper products.

The problem is that Tesla needs higher prices to keep its margins high. Without high prices…