Top tech-fund manager says Oracle and Broadcom are better buys right now. Here’s why.
The “Magnificent Seven” needs an upgrade.
If you’re invested in the so-called Magnificent Seven stocks, here’s what you can do to boost your portfolio’s performance: Kick out Tesla and Apple.
Keep the other five: Nvidia; Microsoft; Amazon.com; Alphabet and Meta Platforms.
Then, to replace Tesla and Apple, bring in Oracle and Broadcom.
A Magnificent Seven upgrade? That’s the recommendation of Vimal Patel, a manager of the Columbia Seligman Global Technology Fund (SHGTX). Patel is worth listening to, because his fund beats its rivals by six percentage points annualized over the past five years, according to Morningstar Direct.
Plus, Patel’s background gives him a lot of tech investing credibility. He has an advanced degree in electrical engineering and worked in the tech industry before turning to fund management. It helps that Patel and his team are based at ground zero for cutting-edge tech developments — in Menlo Park, Calif.
Let’s look at Patel’s logic for selling two of the Magnificent Seven, and why he’s choosing these particular two replacements. Then we’ll review the other five stocks.
Out with the old
Tesla: This electric vehicle maker has been a fantastic stock to own, but it might be time to step to the sidelines, Patel says.
Unlike many tech funds, his fund doesn’t own Tesla shares. One reason is the competition Tesla faces in the electric-vehicle industry, from both traditional automakers as well as pressure in the Chinese market from domestic producers. As a result, Patel expects Tesla to see decelerating sales growth and downward pricing pressure that erodes profit margins. “It’s just a pricing war out there,” he says.
What about the prospects for Tesla’s robotaxis and its Optimus humanoid robots? Patel says it remains to be seen how well Tesla can do against Waymo and if it can succeed with robots. “We don’t buy hopes and dreams,” Patel says.
Apple: Apple benefits from a loyal fan base locked in to its walled-garden ecosystem of hardware, software and services. But Apple customers are suffering from iPhone upgrade exhaustion. “We have been waiting for an iPhone growth cycle, and we have not seen it,” Patel says. He adds that Apple’s artificial intelligence offering has been underwhelming.
A third problem for Apple is geopolitical risk. While the company has moved some of its supply chain to India, it still sources many products from China. That leaves Apple vulnerable to the U.S.-China trade war. “Of all the Mag 7, they are the most exposed,” Patel says. “They are not in a good position to navigate the tariff situation.” Patel’s fund held Apple shares as of March 31, but the portfolio was underweighted in the stock relative to the fund’s benchmark.
In with the new
Here’s why Patel would add Oracle and Broadcom to the Magnificent Seven — replacing Tesla and Apple.
Oracle: Oracle has long been an essential database software supplier, posting fairly steady mid-single-digit revenue growth. That’s changing in a big way as the company ramps up its Oracle Cloud Infrastructure (OCI) business. This is a cloud computing platform that competes seriously with Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). “They are becoming the next hyperscaler,” Patel says about Oracle. They are starting to show their chops.”
Oracle’s overall cloud revenue — from infrastructure and apps — advanced 27% in the most recent quarter to $6.7 billion, supporting 11% overall sales growth to $15.9 billion. “We hit double-digit revenue growth, and it’s only going up from here even as the company gets bigger,” Oracle CEO Safra Catz reported on the company’s latest earnings call. Cloud revenue will grow 40% in the next 12 months, she predicts. “Oracle is well on its way to being not only the world’s largest cloud application company, but also one of the world’s largest cloud infrastructure companies.”
Oracle is also a play on artificial intelligence (AI). Oracle offers companies a way to let AI large language models (LLMs) loose on their private data stored in Oracle databases, with an offering called Oracle 23 AI. “We are the key enabler for enterprises to use their own data and AI models. No one else is doing that,” said Oracle co-founder and chief technology officer Lawrence Ellison during the company’s most recent earnings call. “This is why our database business is going to grow dramatically.”
All in, this should produce 16% revenue growth over the next year, to $67 billion, compared to 9% growth in the trailing 12 months.
Broadcom: Hyperscalers including Amazon.com, Alphabet and Microsoft pay up for Nvidia’s versatile “merchant silicon” chips in part because they are highly programmable. That’s also what contributes to the rich price tags and heavy power consumption.
To help bring down costs, hyperscalers also design their own task-specific chips, or application-specific integrated circuits (ASICs). They are less programmable, but that brings down costs and power consumption. These chips also help hyperscalers offer customized services that distinguish them from competitors. Alphabet, for example, deploys custom silicon called Tensor Processing Units (TPUs) for use in AI training and inference.
Broadcom plays a big role here because it helps hyperscalers design these custom chips. Says Patel: “Instead of spending a ton of money on Nvidia chips, hyperscalers create their own chips made by Broadcom. This reduces costs and power requirements dramatically.”
Broadcom’s AI chip revenue grew 46% to $4.4 billion in the most recent quarter supporting total sales growth of 20% to $15 billion. The company forecasts 60% year-over-year AI chip sales growth to $5.1 billion, in the next quarter.
Broadcom also offers networking chips used in switching and routing to companies such as Cisco Systems and Arista Networks, and wireless chips used in smartphones. Broadcom was the top position in Patel’s fund at the end of the first quarter.
As for the rest of the Magnificent Seven, here are some quick takeaways from Patel:
Nvidia should continue to post solid growth because of the ongoing demand for AI infrastructure. It will benefit from a big new wave of growth as demand for enterprise AI offerings such as Microsoft Copilot take off. Hyperscalers increased their capex spending projections in first-quarter earnings calls, deep-sixing the perceived threat of low-budget competition from DeepSeek.
Microsoft and Amazon will continue to post solid growth because of AI-related demand for cloud services.
Meta will benefit because it is using AI to help customers create ad campaigns.
The discretionary spending sides of the businesses at Amazon.com (retail sales) and Meta and Alphabet (ad spending) should hold up because they economy should stay firm.
Alphabet, at 19.4 times forward earnings, looks particularly cheap. That’s 17% below the trailing five-year average for this measure, according to LSEG. The stock is being held back in part because of fears that AI search will kill off Google search, but Alphabet’s AI Overview is holding up against competitors including Chat GPT.
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