magnificent

The Magnificent Seven is more than just a Western from the 1960s. Today, the term refers to the group of innovative companies that have driven stock market gains in recent years. They are technology names you probably know well, from Nvidia to Meta Platforms, and they’re all involved in the high-growth area of artificial intelligence (AI). These players have helped the S&P 500 climb in the double-digits this year, too, and even reach record levels.

But the Magnificent Seven aren’t the only game in town, and two other stocks in particular may give them a run for their money over the next five years, as AI infrastructure spending soars and customers seek capacity for their AI workloads. Right now, these two AI stocks are charging forward and already have outperformed the Magnificent Seven so far this year — but this movement may not be over. Let’s check out the two players that may crush the Magnificent Seven in the years to come.

Image source: Getty Images.

1. CoreWeave

CoreWeave (CRWV -3.32%) has climbed more than 250% since its market launch earlier this year, but that doesn’t mean it’s used up all of its fuel. The company may just be getting started, and that’s because it offers up a service in high demand today — and into the future. I’m talking about AI infrastructure capacity.

CoreWeave, thanks to its 250,000 graphics processing units (GPUs), has a lot of computing power to offer — and customers can easily rent it as needed, even on an hourly basis. This means they don’t have to invest in purchasing costly GPUs but still can access the power they need for the training and inferencing of their models, for example.

To make the picture even sweeter, Nvidia plays a key role in the CoreWeave story. The chip giant holds a 7% stake in the company and recently pledged to buy any unused capacity through 2032 — this removes a great deal of risk from CoreWeave stock.

Finally, CoreWeave’s revenue has been exploding higher, growing more than 400% in the first quarter from the year-earlier period — and more than tripling in the latest quarter year over year. Considering the great need for AI capacity to power the training of AI and its application in the real world, the company should continue to see strong demand — and this may send the stock to greater gains than those of the Magnificent Seven.

2. Broadcom

Broadcom (AVGO -5.90%) stock has advanced nearly 50% so far this year, but this company, too, could keep marching higher in the coming years as cloud service providers focus on scaling up AI infrastructure. The company is a networking giant, known for thousands of products found in a variety of places — from smartphones to data centers.

But this data center business has driven growth as the AI boom picked up momentum. Customers are turning to Broadcom for networking solutions, needed to connect the many compute nodes that power AI workloads across data centers. Broadcom is an expert here and has seen its Tomahawk switches and Jericho routers fly off the shelves.

The company also represents a future winner in the area of computing power as it designs AI accelerators, known as XPUs — but doesn’t necessarily compete with chip giant Nvidia. The XPU is a custom accelerator, made for specific purposes while Nvidia’s chips are high-powered for general use. This makes it easier for Broadcom to carve out market share, serving a customer’s specific needs and offering a product that may be complementary to Nvidia’s. In the recent quarter, Broadcom announced a $10 billion order for XPUs — and analysts say the customer is top AI lab OpenAI.

The AI business has resulted in significant revenue gains in recent quarters — for example, in the latest one, Broadcom reported AI revenue growth of 63% to $5.2 billion. And this trend could continue if Nvidia chief Jensen Huang is right: He expects AI infrastructure spending to climb to $3 trillion or $4 trillion by the end of the decade, and Broadcom clearly could benefit from this stage of the AI boom. And that suggests this stock may crush the Magnificent Seven players as this AI infrastructure story unfolds.

If you’re thinking about investing in the stock market today, you may be wondering whether it’s a better idea to go with the big names in the “Magnificent Seven” or to simply hold a position in the entire S&P 500.

The Magnificent Seven refers to some of the most prominent growth stocks in the world: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Investing in these companies has yielded strong returns for investors over the years. Meanwhile, the S&P 500 makes for a more balanced investment overall, as it gives investors broader exposure to the market while still growing over the long term. By having a position in the 500 best stocks rather than just the top seven, there’s much more diversification.

Which option should you go with today, if your focus is on long-term growth?

Image source: Getty Images.

The Magnificent Seven are magnificent, but they could be overdue for a decline

One way you can gain exposure to the Magnificent Seven is by investing in the Roundhill Magnificent Seven ETF (MAGS -3.81%). The fund invests in just the Magnificent Seven and, thus, can be an easier option than investing in each stock individually. Since its launch in April 2023, the fund has soundly outperformed the S&P 500, rising by more than 165% while the broader index has achieved gains of around 64%.

Many of the Magnificent Seven have benefited from an uptick in demand due to artificial intelligence (AI) and have been investing heavily in next-gen technologies. However, many investors worry that a bubble has already formed around AI stocks and that spending could slow down, especially if there’s a recession on the horizon. If that happens, then these stocks could be susceptible to significant declines.

While these stocks have been flying high of late, back in 2022, when the market was in turmoil due to rising inflation and as investor sentiment was souring on growth stocks, each of the Magnificent Seven stocks fell by more than 26%. The worst-performing stocks were Meta and Tesla, which lost around 65% of their value. That year, the S&P 500 also fell, but at 19%, it was a more modest decline.

The S&P 500 is more diverse, but that doesn’t mean it’s risk-free

If you want to have exposure to the S&P 500, you can accomplish that by investing in an S&P 500 index fund, such as the SPDR S&P 500 ETF (SPY -2.67%). Its low expense ratio of 0.09% makes it a low-cost, no-nonsense way of tracking the S&P 500. Its focus is to simply mirror the index, and it does a great job of that.

The problem, however, is that while the S&P 500 will give you exposure to more stocks than just the seven best stocks in the world, how those leading stocks do will still have a significant impact on the overall stock market. And the Magnificent Seven, because they are so valuable, are also among the SPDR ETF’s largest holdings.

But even if you were to go with a more balanced exchange-traded fund, such as the Invesco S&P 500 Equal Weight ETF, which has an equal position in all S&P 500 stocks, that may only offer modest protection from a wide-scale sell-off. In 2022, the ETF declined by 13%.

You’re always going to face some risk when investing in the stock market, especially if your focus is on growth stocks, which can be particularly volatile.

What’s the better strategy for growth investors?

If your priority is growth, then going with the Magnificent Seven can still be the best option moving forward. These stocks will undoubtedly have bad years, but that’s the risk that comes with growth stocks. However, given their dominance in tech and AI, the Magnificent Seven still have the potential to vastly outperform the S&P 500 in the long run, and their gains are likely to far outweigh their losses.

For every winning stock or sector in 2025, you can also find some disappointments. The major indexes are doing well so far, with the Nasdaq Composite up 26%, the S&P 500 rising 11% and the Dow Jones Industrial Average moving 11% higher.

But there are plenty of big names that are struggling, and some are currently sitting near their 52-week lows. These could be tempting contrarian buys for investors looking to profit from what they believe will turn out to be temporary weaknesses for the companies in question. 

When contrarian investors pick well, it can be a winning strategy. Choose poorly, and you’ll be stuck with a value trap, or even worse, a situation where you’ve tried to “catch a falling knife.”

Here are two well-known companies that are in weakened positions right now that could be ripe for small investments.

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Chipotle Mexican Grill: Down 31% in the last year

Chipotle Mexican Grill (CMG -0.73%) stock seems to ride the highest highs and suffer the lowest lows. The company experienced a series of foodborne illness outbreaks in its restaurants from 2015 to 2018 that led to a $25 million fine from the Justice Department — the largest-ever regulatory fine in a food safety case. Those outbreaks drove away customers, sapped its profits, and clobbered the stock. But Chipotle addressed its issues, sales recovered, and the stock soared so high that in 2024, the company executed a 50-for-1 stock split to make the stock more accessible to employees and retail investors.

This year, however, that roller coaster has been heading down again. Chipotle currently trades just 4% above its 52-week low — and about 42% off its peak.

However, what makes Chipotle promising is its loyal customer base. Chipotle revolutionized the fast-food niche by offering something different than burgers, chicken, or sandwiches. Its ingredients use no preservatives, and its kitchens don’t have freezers because everything is prepared fresh. That helps make Chipotle appealing to health-conscious customers.

The company’s revenue in the second quarter was $3.1 billion, up 3% from a year before, although comparable restaurant sales fell by 4%. Adjusted earnings came in at $0.33 per share, down by $0.01 per share from the same quarter a year ago.

The company is dealing with higher prices for its ingredients, particularly steak and chicken, as well as modestly higher labor costs, all of which are cutting into the company’s margins. Management believes that full-year sales will be flat, but plans to open between 315 and 345 additional locations this year.

Target: Down 41% in the last year

Not so long ago, Target (TGT -0.82%) was a high-flying retailer viewed as a true challenger to Walmart. However, the last few years have not been kind. Revenue has declined since 2023, and the company’s stock is struggling. Currently, it’s down by about 50% from its peak, and trades less than 3% above its 52-week low.

The company is trying to turn things around by promoting Chief Operating Officer Michael Fiddelke to CEO — he’ll take over in February. Fiddelke has been central to Target’s efforts to be more flexible, use technology, and make the company more agile to position it for growth. He was credited for the success of Target’s omnichannel efforts, and also helped the company develop its private-label brands, which it can sell at lower prices while still earning better margins than it does on national brand products.

Sales in the second quarter were $25.2 billion, down nearly 1% from the prior-year period. The company’s operating income margin of 5.2%, down from 6.4% a year earlier. Gross margin was 29%, down from 30%.

Regardless of who is in the CEO’s office, Target will face a challenging environment, with supply chain issues, tariffs, and labor costs providing headwinds. Those who invest now should only do so if they have a long time horizon in mind. But considering that Target’s price-to-earnings ratios are still far cheaper than Walmart’s right now, it’s an intriguing bet on a retailer that at one point showed some real power on Wall Street.

TGT PE Ratio data by YCharts.

The bottom line

There are compelling cases for bargain-hunting investors to consider Chipotle and Target. Chipotle has a dominant brand, a loyal customer base, and it stands apart from other fast-casual restaurants. It has proven that it can face adversity, recover, and prosper. Target, meanwhile, has omnichannel strength, a growing base of private-label products, and new leadership waiting to take the helm. Both companies are turning profits — they’re just not making the margins that investors had hoped to see.

These are long-term contrarian plays right now that could profit shareholders handsomely as the companies rebound. But if you’re going to invest in either of them now, the position should only be a small piece of a balanced and diversified portfolio, and one that you plan to hold for at least three to five years.

Billionaire Bill Ackman is one of the most widely followed investment managers on Wall Street. His Pershing Square Capital Management hedge fund has outperformed the S&P 500 in 2025. It’s up 22.9% as of the end of August, compared to a 10.8% gain in the benchmark index during that period.

Ackman’s outperformance stems from taking advantage of opportunities when the market temporarily undervalues certain stocks. He holds only a handful of positions in the fund, and he typically buys and holds them for a long time. Even better, he and his team are happy to share the details on social media and investor calls, making it relatively easy for average investors to follow along.

In May, Pershing Square disclosed that it had bought another member of the “Magnificent Seven” stocks. Its first Magnificent Seven stock, Alphabet (GOOG -0.72%) (GOOGL -0.73%), has been a longtime holding for the hedge fund, and represents one of its biggest holdings. While the new addition isn’t quite as large as its stake in Alphabet, it presents another great opportunity for those following Ackman’s investing style.

Image source: Getty Images.

A magnificent new position

The stock market saw some very big swings at the start of the year, which were exacerbated in early April by President Donald Trump’s tariff announcements. While the stock market was moving wildly, it presented several great opportunities for investors that could follow Warren Buffett’s timeless advice: “Be greedy when others are fearful.”

To that point, Ackman saw the chance to pick up one stock he’s been studying and has long admired. Amazon (AMZN -1.20%) shares fell on fears that tariffs would negatively affect its retail business, and that a slowing economy would produce less demand for its cloud computing services. Ackman and his team freed up capital by selling Pershing Square’s entire position in Canadian Pacific Kansas City to buy the stock.

Ackman got a steal of a deal. He said he bought shares at 25 times forward earnings estimates. While there was a lot of uncertainty at the time about whether those earnings estimates would need to be revised downward, Ackman had confidence that Amazon was well worth the price. In fact, he thinks the stock is still undervalued. “Although the company’s share price has appreciated meaningfully from our initial purchase, we believe substantial upside remains given its ability to drive a high level of earnings growth for a very long time,” he wrote in his letter to shareholders last month.

Here’s why Ackman may continue to hold Amazon shares for a very long time.

Two great category-defining businesses

Amazon essentially has two businesses: Its retail operations and its cloud computing platform. Ackman believes both still have room to benefit from long-term growth trends and opportunities for margin expansion.

On the cloud computing side, Amazon Web Services (AWS) is the largest public cloud provider in the world. It now sports a $120 billion run rate, and it’s about 50% bigger than its next-closest rival. It’s also tremendously profitable already. The segment sports a 37% operating margin over the past 12 months. To put that in perspective, Alphabet’s Google Cloud has an operating margin of less than half that (although it’s gaining leverage as it scales).

Despite Amazon’s large run rate, there’s still ample room for growth in both the near term and long term, according to Ackman. Amazon’s management has struggled to build out capacity fast enough to meet the surging demand from artificial intelligence customers. It’s spending over $100 billion on capital expenditures this year (some of that related to its logistics network), and management says that demand continues to outstrip supply growth. That situation is echoed by Alphabet’s management and other hyperscale cloud providers.

In the long run, Ackman expects more enterprises to move from on-premise computing to the cloud. He points out that just 20% of IT workloads are currently using cloud computing, but he expects that to invert over time, to 80% of workloads being in the cloud.

On the retail side of the business, Ackman points out that Amazon isn’t the only retailer affected by tariffs. In fact, it may be better suited to navigate the environment, as it sports a wide selection of goods. Amazon’s ability to offer reliable and convenient delivery on a growing number of items gives it an advantage over competitors.

That advantage is only improving as it continues to build out its logistics network and warehouse technology, and reduce costs. That allows it to get more items to more customers faster, all while decreasing its fulfillment expenses. Ackman points out that Amazon’s logistics improvements led to a 5% reduction in per-unit shipping costs last quarter. He thinks further improvements could lead it to double its retail profit margin from 5%. That’s a huge profit on a $550 billion business.

While Amazon shares have climbed significantly since Ackman established Pershing Square’s position, investors shouldn’t shy away from the stock at this higher price. The long-term trends favor Amazon’s businesses, and it’s a leading player in both.

Despite periods of turmoil in the stock market this year, most of the “Magnificent Seven” stocks have stayed hot. Those tech-focused megacaps have histories of generating strong earnings and free cash flows, and they’re all investing heavily in artificial intelligence (AI). Many investors expect them to be the primary beneficiaries of the AI revolution, which helps explain why their market caps have all now surpassed $1 trillion.

Despite their sheer size, some Wall Street analysts still foresee their shares making big moves upward. According to certain analysts, these two Magnificent Seven stocks could rise by 31% and 19%, respectively, over the next year.

Image source: Getty Images.

Microsoft: Reaping the rewards of AI investment

There was a time when investors had questions about Microsoft‘s (MSFT -0.44%) investments in artificial intelligence. But recent quarters have largely put those doubts to rest, and Microsoft’s stock has risen about 20% so far this year. In the company’s fiscal 2025 fourth quarter (which ended June 30), Microsoft’s Azure and other cloud services division, which houses a lot of its AI offerings, generated astounding revenue growth of 39% year over year.

“Cloud and AI is the driving force of business transformation across every industry and sector,” said CEO Satya Nadella in Microsoft’s latest earnings release.

Following the earnings release, Truist Securities analyst Joel P. Fishbein Jr. issued a research report, maintaining a buy rating on Microsoft and raising his price target on the stock to $675, forecasting a gain of about 31% over the next 12 months. Fishbein thinks the tech giant will continue to see strong growth from its cloud business, as well as tailwinds in the broader AI ecosystem. “Sustained strong cloud growth at scale & growing AI demand capture can lead to at least low teens double-digit rev, profit & CF (cash flow) growth over an extended period, while consistently returning cash via divs/repurchases,” he wrote.

Microsoft has been able to monetize AI by integrating AI models from OpenAI and charging clients that use these templates. Additionally, Microsoft sells its Azure clients enterprise AI tools through Azure Foundry that allow them to build and implement AI chat, conversational AI, and AI agents, among other tools. Further growth is likely as AI begins to spread to more parts of the economy and different types of businesses across sectors.

Though it can be hard to gauge how much more room for growth a company with a more than $3 trillion market cap might have, I don’t have any issue recommending Microsoft to long-term investors. In addition to AI, the company has a tremendous slate of businesses, including its popular suite of office productivity software, its traditional cloud business, video games, and social media platforms. Plus, Microsoft is one of the only companies with a debt rating higher than the U.S. government.

Alphabet: Overcoming challenges all year

It’s been a tremendously volatile year for Alphabet (GOOG 0.14%) (GOOGL 0.03%). Toward the end of 2024, a federal judge sided with the Department of Justice in a lawsuit, agreeing that the Google parent had employed monopolistic practices to protect its domination of the search engine space, as well as in its digital advertising practices.

The Justice Department then asked U.S. District Judge Amit Mehta to make Alphabet divest itself of its Google Chrome unit, a key element of the company’s search business, which drives over half of Alphabet’s revenue. But recently, Judge Mehta ruled that the company would not have to do this.

Furthermore, Mehta said Alphabet can continue to pay distributors like Apple to make Google the default search engine on their web browsers. Alphabet reportedly paid Apple over $20 billion in 2022 to make it the default engine on the Safari browser, which is installed standard on all iPhones. However, Mehta said that exclusive contracts will not be allowed and that Google would have to share some of its search data with rivals. Overall, investors considered this a positive outcome for Alphabet.

Many were also concerned earlier this year that AI chatbots like OpenAI’s ChatGPT might significantly cut into Google’s search business. However, the AI Overviews results powered by Google Gemini that now top the responses to most Google search queries appear to be making progress and meeting the needs of consumers. Evercore ISI analyst Mark Mahaney said the judge’s ruling had removed a clear overhang on the stock, which will allow investors to focus on the company’s fundamentals.

“What we see is a Core Catalyst, with Google Search revenue growth likely to remain DD% [double digit] for the foreseeable future,” Mahaney wrote in a research note. While generative AI  will undoubtedly continue to provide competition, Mahaney believes Google’s ability to innovate will keep its search engine competitive and allow the company to continue to generate solid growth. His new 12-month price target on Alphabet stock is $300, implying about 19% upside from current levels.

I largely agree with Mahaney, although I think investors should monitor competition from the likes of ChatGPT. But Alphabet also has many other strong and growing businesses, among them its cloud business, YouTube, its Waymo self-driving vehicle unit, and even its own AI chip design business. Even after its big run-up, Alphabet still trades at about 24 times forward earnings. Given that the company’s relevance is unlikely to fade any time soon, at that level, it looks like a good long-term buy.

The stock market makes it easy to build wealth. All you have to do is invest in strong businesses that are growing and profitable. Choosing top stocks from among brands or services you use regularly is a great place to start.

To give you some ideas, three Fool.com contributors are here to offer three timely stocks to buy in September. Here’s why they chose Apple (AAPL -0.19%), Airbnb (ABNB -0.01%), and RH (RH -1.55%).

Image source: Getty Images.

1. Apple still has an ace up its sleeve

John Ballard (Apple): Shares of Apple are up 40% over the past three years but are currently trading below their 52-week high of $260. Apple has a tremendous competitive moat around its ecosystem of products and services that locks in customers and generates enormous profits. While flat iPhone sales and the lack of a compelling artificial intelligence (AI) strategy has created uncertainty for investors, the recent dip is a good buying opportunity.

Apple is one of the strongest consumer brands. Its installed base of active devices, including iPhones, continues to hit all-time highs. Apple reported more than 2.35 billion active devices at the beginning of the year. This continues to fuel steady growth in services, including subscriptions and app purchases, which now make up more than a quarter of Apple’s revenue.

While Apple Intelligence has had a positive impact on iPhone 16 sales, it hasn’t been the game-changer investors were expecting. For a company that generates $96 billion in free cash flow and has massive cash resources on its balance sheet, Apple has surprisingly missed the boat on building its own proprietary AI models. But the good news is that Apple’s enormous cash resources will allow it to catch up quickly through acquisitions, which is a catalyst to watch.

Apple’s sticky ecosystem of products and services, growing installed base of devices, and profitability make the stock a solid investment. These advantages buy some time for Apple to figure out its AI strategy, providing investors a good opportunity to buy shares before better news sends the shares higher.

2. This travel powerhouse is thriving, but its stock isn’t keeping up

Jennifer Saibil (Airbnb): Airbnb stock has not kept up with its growth, but as it continues to expand and increase sales, it looks poised to soar.

Airbnb has become the premier platform for vacation rentals, changing the landscape of the travel industry. While short-term rentals are its bread and butter, it offers a large assortment of services today, including longer-term stays and even living in Airbnbs.

It had already launched an entire segment devoted to experiences, which dovetails with its travel categories, and recently launched a new segment with all kinds of services, like salons and photography. Each of these new features increases its addressable market and its brand presence, making it the go-to name for travel-related services.

That’s important to maintain its growth levels. Revenue growth has slowed, but it remains in the double digits, and revenue increased 13% year over year in the second quarter. Aside from the expansion, Airbnb is constantly adding new features and updates to improve the user experience and generate higher engagement and sales. Some of its updates include more flexible payments and a more fine-tuned search system, which makes it easier for customers to press the button.

It’s also been building its brand in countries where it has plenty of rentals but lower name recognition. Just as many travelers use it domestically in the U.S., it’s trying to make that happen in other regions.

It’s done a spectacular job of generating free cash flow, which reached $1 billion in the second quarter at a 31% margin, and it’s also highly profitable, with a 21% profit margin in the quarter.

The market has been disappointed in Airbnb’s decelerating growth, and it has been concerned about regulatory hurdles. But Airbnb continues to thrive as a business, and its stock should eventually follow suit.

3. Housing stocks are coming back

Jeremy Bowman (RH): It’s been a rough few years for RH, the home furnishing company formerly known as Restoration Hardware, but a number of tailwinds appear to be forming for the company.

First, after a long wait, the Federal Reserve appears to be ready to lower interest rates following Jerome Powell’s comments at the Jackson Hole conference, and RH is likely to be one of the beneficiaries.

The company’s business is correlated with the housing market, as home sales tend to trigger purchases of home furnishings. Even in a challenging housing market, RH has delivered solid results, returning to growth after an earlier lull as revenue rose by 12% in the first quarter.

Additionally, the company is expanding both geographically and into new businesses. It’s opening up several galleries across Europe, and has launched new verticals, including a handful of guesthouses and restaurants, and leasing charter jets and yachts. That’s all part of a strategy to extend the luxury brand beyond home furnishings, and it could significantly expand RH’s addressable market.

The stock is still down significantly from its all-time high, and looks cheap based on forward estimates, trading at just around 15 times next year’s expected earnings.

The company is set to report second-quarter earnings on Sept. 11, and better-than-expected results could spark a surge in the stock, and a rate cut from the Federal Reserve later in the month could do the same.

Over the longer term, RH has a lot of upside, especially if the housing market recovers.

The S&P 500 and Nasdaq Composite are hovering around all-time highs. A big part of the rally is investor excitement for sustained artificial intelligence (AI)-driven growth and adjustments to Federal Reserve policy that open the door to interest rate cuts.

While investor sentiment and macroeconomic factors undoubtedly influence short-term price action, the stock market’s long-term performance ultimately boils down to earnings.

Nvidia (NVDA 1.10%) will report its second-quarter fiscal 2026 earnings on Aug. 27 after market close. Here’s why expectations are high, and why the “Ten Titans” stock could single-handedly move the S&P 500.

Image source: Getty Images.

Nvidia’s profound impact on the S&P 500

The Ten Titans are the largest growth stocks by market cap — making up a staggering 38% of the S&P 500.

Nvidia is the largest — with a 7.5% weighting in the index.

The other Titans are Microsoft, Apple, Amazon, Alphabet, Meta Platforms, Broadcom, Tesla, Oracle, and Netflix.

Aside from its value, Nvidia is also a major contributor to S&P 500 earnings growth.

NVDA Market Cap data by YCharts

Megacap tech companies influence the value of the S&P 500 and its earnings. And since many of the top earners are growing quickly, the market arguably deserves to have a premium valuation.

Since the start of 2023, Nvidia added roughly $4 trillion in market cap to the S&P 500. But it also added over $70 billion in net income — as its trailing-12-month earnings went from just $5.96 billion at the end of 2022 to $76.8 billion today. That’s like creating the combined earnings contribution of Bank of America, Walmart, Coca-Cola, and Costco Wholesale in the span of less than three years.

Nvidia’s value creation for its shareholders, and the scale of just how big the business is from an earnings standpoint, is unlike anything the market has ever seen. But investors care more about where a company is going than where it has been.

Nvidia’s unprecedented profit growth

Expectations are high for Nvidia to continue blowing expectations out of the water. Over the last three years, Nvidia’s stock price rose after its quarterly earnings report 75% of the time. Analysts have spent the last few years flat-footed and scrambling to raise their price targets as Nvidia keeps raising the bar. It looks like they aren’t making that mistake any longer — as near-term forecasts are incredibly ambitious.

As mentioned, Nvidia’s trailing-12-month net income is $76.8 billion, which translates to $3.10 in diluted earnings per share (EPS). Consensus analyst estimates have Nvidia bringing in $1 per share in earnings for the quarter it reports on Wednesday and $4.35 for fiscal 2026. Going out further, analyst consensus estimates call for 37.8% in earnings growth in fiscal 2027, which would bring Nvidia’s diluted EPS to $6 per share.

NVDA Net Income (TTM) data by YCharts

Based on Nvidia’s current outstanding share count, that would translate to net income of $107.7 billion in fiscal 2026 and $148.5 billion in fiscal 2027. Unless other leaders like Alphabet, Microsoft, or Apple accelerate their earnings growth rates, Nvidia could become the most profitable U.S. company by the time it closes out fiscal 2027 in January of calendar year 2027. These projections strike at the core of why some investors are willing to pay so much for shares in the business today.

The key to Nvidia’s lasting success

Nvidia can single-handedly move the stock market due to its high weighting in the S&P 500. However, its influence goes beyond its own stock, as strong earnings from Nvidia could also be a boon for other semiconductor stocks, like Broadcom. But the ripple effect is even more impactful.

In Nvidia’s first quarter of fiscal 2026, four customers made up 54% of total revenue. Although not directly named by Nvidia, those four customers are almost certainly Amazon, Microsoft, Alphabet, and Meta Platforms. So strong earnings from Nvidia would basically mean that these hyperscalers continue to spend big on AI — a positive sign for the overall AI investment thesis.

However, Nvidia’s long-term growth and the stickiness of its earnings ultimately depend on its customers translating AI capital expenditures (capex) into earnings — which hasn’t really happened yet.

ORCL CAPEX To Revenue (TTM) data by YCharts

Cloud computing hyperscalers are spending a lot on capital expenditures (capex) as a percentage of revenue — showcasing accelerated investment in AI. But eventually, the ratio should decrease if investments translate to higher revenue.

Investors may want to keep an eye on the capex-to-revenue metric because it provides a reading on where we are in the AI spending cycle. Today, it’s all about expansion. But soon, the page will turn, and investors will pressure companies to prove that the outsize spending was worth it.

The right way to approach Nvidia

Almost all of Nvidia’s revenue comes from selling graphics processing units, software, and associated infrastructure to data centers. And most of that revenue comes from just a handful of customers. It doesn’t take a lot to connect the dots and figure out just how dependent Nvidia is on sustained AI investment.

If the investments pay off, the Ten Titans could continue making up a larger share of the S&P 500, both in terms of market cap and earnings. But if there’s a cooldown in spending, a downturn in the business cycle, or increased competition, Nvidia could also sell off considerably. So it’s best only to approach Nvidia with a long-term investment time horizon, so you aren’t banking on everything going right over the next year and a half.

All told, investors should be aware of potentially market-moving events but not overhaul their portfolio or make emotional decisions based on quarterly earnings.