Magnificent 7 Valuation Scorecard: December 2025 (Sector-Adjusted Grades)

Key Takeaways

• GOOGL (A): Best value at 17.4x P/E—cheapest MAG7 stock, below S&P 500 average
• AMZN (A-): Best earnings quality—only hyperscaler shortening depreciation
• MSFT (B+): Premium justified—Rule of 40 score of ~85%, supply-constrained demand
• AAPL (B): Services-dependent—26% of revenue but 43% of gross profit
• NVDA (B): Growth-adjusted fair—PEG ratio 0.71, but cyclical risk
• META (C+): Quality concerns—38% capex intensity, extended depreciation
• TSLA (D): Faith-based—85% of $1.1T market cap is optionality premium

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Contents

1. The Problem With Simple P/E Comparisons
2. The Sector-Adjusted Scorecard
3. Valuation Frameworks by Sector
4. The ROIC-Valuation Matrix
5. Concentration Risk
6. What to Watch in Q4 2025 Earnings
7. Methodology & Data Sources

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The Problem With Simple P/E Comparisons

Most Magnificent 7 analysis gets the fundamentals wrong from the start.

Articles rank these stocks by P/E ratio as if comparing apples to apples. They're not. A trailing P/E of 45.5x for NVIDIA (a cyclical semiconductor company in an AI supercycle) means something entirely different than 190x+ for Tesla (an auto company priced for robotaxi and robotics optionality).

Here's the breakdown of what these 7 companies actually are:

Company	Primary Business Model	Sector	What P/E Actually Measures
NVDA	Semiconductor (cyclical)	Semiconductors	Earnings at potential cycle peak
TSLA	Auto + Energy + Optionality	Autos/Tech hybrid	Core auto + $900B in speculative segments
AAPL	Hardware + Services	Consumer Tech	Blended hardware margins + high-margin services
MSFT	Cloud + Enterprise	Enterprise SaaS	Supply-constrained cloud + mature Office
GOOGL	Advertising + Cloud	Digital Ads + SaaS	Core Search + improving Cloud margins
AMZN	E-commerce + Cloud	Retail + SaaS	Low-margin retail + high-margin AWS
META	Advertising + Metaverse	Digital Ads	Core ads with 38% capex intensity

Each requires a different valuation framework. Using a single P/E comparison is like comparing a utility stock to a biotech—technically possible, practically meaningless.

This scorecard uses sector-appropriate metrics for each company, then grades them on whether their valuation is justified relative to peers in their actual business segments.

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The Sector-Adjusted Scorecard

Company	Primary Metric	Current Value	vs Sector	Quant Signal	Grade
GOOGL	Core P/E + Cloud EV/Rev	17.4x / ~6x	Cheapest	Best Value	A
AMZN	AWS EV/Rev + Earnings Quality	~8x / 1.7x ratio	Conservative	Quality Play	A-
MSFT	Rule of 40 Score	~85%	Best-in-class	Premium Justified	B+
AAPL	Segment-weighted P/E	~25x blended	Moderate	Services-dependent	B
NVDA	PEG Ratio	0.71	Below 1.0	Growth-adjusted fair	B
META	Adjusted P/E (ex-depreciation)	~27x adjusted	High for ads	Quality Concerns	C+
TSLA	Sum-of-parts	$900B+ optionality	85% speculative	Faith-based	D

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Valuation Frameworks by Sector

1. Semiconductors: Why P/E Is a Trap (NVDA)

Peter Lynch famously warned: "It is usually a bad idea to buy a cyclical business when the P/E is low."

For semiconductors, this warning cuts both ways:

• At cycle peaks: Earnings are high, so P/E appears low—often a SELL signal
• At cycle troughs: Earnings are depressed, so P/E appears high—often a BUY signal

NVIDIA's current situation is complex because the AI cycle may extend the typical semiconductor pattern:

Metric	Current (Dec 2025)	Interpretation
Trailing P/E	45.5x	Misleading if at cycle peak
Forward P/E	26.5x	Better, but growth-dependent
PEG Ratio	0.71	<1 suggests undervaluation
EV/EBITDA	39.2x	High vs semi peers (~20x avg)
Gross Margin	73.4%	Exceptional—indicates pricing power

The PEG ratio is the key metric here. At 0.71, NVIDIA is trading below 1.0x—the traditional "undervalued" threshold—because its growth rate (90% FY25, 30-35% FY26 guided) is so high that even a 45x P/E appears cheap relative to earnings expansion.

However, this assumes:

• AI capex cycle continues through 2026-2027
• No significant margin compression from AMD, Intel, or custom silicon (Google TPU, Amazon Trainium)
• Blackwell/Rubin architectures maintain technological lead

Grade: B — Growth-adjusted fair value, but cyclical risk warrants caution. PEG <1 is a positive signal, but semi cycles can turn quickly.

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2. Automotive/Hybrid: Why P/E Is Meaningless (TSLA)

Tesla's valuation cannot be analyzed using traditional automotive metrics. Here's why:

Traditional Automaker	P/E Ratio	Market Cap
GM	5.2x	~$55B
Ford	6.8x	~$42B
Stellantis	3.0x	~$45B
Tesla	190-381x	~$1.1T

The 30-100x valuation gap is not explained by auto fundamentals. It's explained by optionality—the market is pricing in segments that don't yet generate meaningful revenue.

Sum-of-Parts Analysis

Segment	Valuation Method	Implied Value	% of Market Cap	Risk Level
Core Auto Business	7x P/E (generous)	$150-200B	14-18%	Low
Energy/Storage	3-5x Revenue	$50-100B	5-9%	Medium
FSD/Robotaxi	DCF with probability weighting	$500-700B	45-64%	Very High
Robotics (Optimus)	Option pricing	$200-300B	18-27%	Extreme

82-86% of Tesla's market cap is attributed to segments that are either speculative or not yet at scale.

The Bear Case (Michael Burry Thesis)

• EV market share has declined from 80% to 38% (first time below 40% since 2017)
• Core auto margins compressed from 25% to <8%
• No buybacks despite $1.1T valuation—company continues diluting shareholders at 3.6% annually
• Bulls have pivoted narratives: EVs → Autonomy → Robotics each time competition arrives

What Would Need to Happen

For current valuation to be justified:

• Robotaxi at scale by 2027-2028 (regulatory + technical hurdles remain)
• FSD achieving Level 4+ autonomy (currently stuck at Level 2+)
• Optimus generating meaningful revenue (currently pre-production)

Grade: D — Faith-based valuation. If optionality fails to materialize, market cap could compress 80%+ to core auto value of $150-200B.

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3. Cloud/Enterprise: The Rule of 40 Framework (MSFT, AMZN, GOOGL)

For SaaS and cloud businesses, the Rule of 40 balances growth and profitability:

Rule of 40 Score = Revenue Growth % + Operating Margin %

Scores >40% indicate healthy, investable businesses. Scores >60% indicate premium businesses deserving premium multiples.

Metric	MSFT Azure	AMZN AWS	GOOGL Cloud	"Good" Threshold
Revenue Growth	40%	20%	34%	>25%
Operating Margin	~45%	~35%	24%	>20%
Rule of 40	~85%	~55%	~58%	>40%
EV/Revenue (Cloud)	~12x	~8x	~6x	6-15x
Backlog	$368B	$200B	$155B	-
Backlog Growth	+25% YoY	+30% YoY	+82% YoY	-

Microsoft (Grade: B+)

• Best-in-class Rule of 40 at ~85%—exceptional for a company at this scale
• Supply-constrained demand: CFO stated "data centers running at near full capacity... demand short of capacity"
• $368B contracted backlog provides multi-year visibility
• Constraint expected through June 2026—validates premium valuation

Premium valuation justified by operational excellence and supply/demand dynamics.

Amazon (Grade: A-)

• Conservative accounting: Only hyperscaler to SHORTEN depreciation (6→5 years), accepting $700M profit hit
• 1.7x capex/depreciation ratio—lowest in the group, best earnings quality signal
• AWS growth reaccelerating to 20%
• $200B backlog with October deals exceeding entire Q3 volume

For deep dive on Amazon's earnings quality advantage, see The Depreciation Divergence.

Alphabet Cloud (Grade: A for cloud contribution)

• Cheapest cloud valuation at ~6x EV/Revenue
• Operating margins improving rapidly (9% → 24%)
• Fastest backlog growth at +82% YoY
• Core Search business provides valuation floor

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4. Digital Advertising: Margin and Quality Analysis (META, GOOGL)

Digital advertising businesses should be valued on:

• Operating margin (scale economics)
• ROIC (capital efficiency)
• FCF Yield (cash generation)
• Capex intensity (reinvestment requirements)

Metric	META	GOOGL (Search/YouTube)	Industry Avg
Operating Margin	40%	~35%	25-30%
ROIC	22% (but inflated?)	18.5%	15-20%
FCF Yield	~3%	~5%+	3-5%
Capex Intensity	38%	23%	10-15%

META: Earnings Quality Concerns (Grade: C+)

Meta requires significant earnings adjustments:

1. Depreciation Extension: Extended useful lives to 5.5 years in January 2025

• Annual profit boost: +$2.9B
• Adjusted P/E: ~27x (vs reported ~22x)

2. Record Capex Intensity: 38% of revenue going to capex (unprecedented for an ad business)

• Historical: 10-15%
• 2026 guidance: "notably larger" dollar growth
• $600B commitment through 2028

3. Capex/Depreciation Ratio: 3.5x—red flag above 2.5x threshold

These factors suggest META's reported 40% operating margin may overstate sustainable profitability by 15-25%.

For more on depreciation manipulation, see How to Track AI Capex Efficiency.

GOOGL: Best Value in Digital Ads (Grade: A)

• 17.4x forward P/E—cheapest in MAG7 and below S&P 500 average
• FCF yield >5%—strong cash generation
• Clean accounting (though depreciation was extended in 2023)
• Regulatory discount appears priced in
• Cloud segment adds growth optionality without capex concerns of META

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5. Consumer Hardware + Services: Segment-Weighted Valuation (AAPL)

Apple's business mix requires segment-weighted analysis because hardware and services have fundamentally different economics:

Segment	Revenue %	Gross Margin	Appropriate Multiple
iPhone	52%	~38%	15x earnings (hardware)
Services	26%	~75%	25x earnings (SaaS/recurring)
Mac	8%	~35%	12x earnings (mature)
iPad	7%	~35%	12x earnings (mature)
Wearables/Other	7%	~40%	15x earnings (growing)

Key Insight: Services at 26% of revenue contribute ~43% of gross profit.

Services revenue has grown 59.5% from $68.4B to $109.2B—this shift justifies a premium over pure hardware companies.

Current blended P/E of ~30x implies the market is pricing in continued Services momentum. If Services growth decelerates, the premium evaporates.

Quality Signal: Apple's Cash ROIC exceeds Accrual ROIC—a positive earnings quality indicator (opposite of META).

Grade: B — Quality business, but valuation assumes Services maintains momentum. iPhone headwinds (slowing upgrade cycles, China competition) create risk to revenue mix.

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The ROIC-Valuation Matrix

Premium valuations are only justified when backed by superior ROIC. Here's how the MAG7 maps:

Quadrant Analysis

Quadrant	Definition	Companies	Implication
Quality at Fair Price	High ROIC + Low P/E	GOOGL, AMZN	Best risk-adjusted opportunities
Quality at Premium	High ROIC + High P/E	MSFT, NVDA, AAPL	Hold/accumulate on dips
Value Trap Risk	Low ROIC + Low P/E	—	None currently in MAG7
Bubble Risk	Low ROIC + High P/E	TSLA	Optionality must materialize

ROIC Rankings (8Q Average)

Company	ROIC (8Q Avg)	8Q Trend	Signal
NVDA	55.0%	Improving	Exceptional (cyclical boost)
AAPL	54.8%	Stable	Excellent consistency
MSFT	27.5%	Stable	Strong
META	20.5%	Worsening	Capex intensity drag
GOOGL	17.8%	Stable	Solid
AMZN	12.2%	Improving	AWS-driven
TSLA	10.2%	Declining	Core auto pressure

NVDA and AAPL lead on ROIC, justifying premium multiples. META's worsening trend and TSLA's decline are concerning signals.

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Concentration Risk: The 35% Problem

The Magnificent 7 now represent:

• 35% of S&P 500 market cap (up from 12.3% in 2015)
• Combined market cap: ~$16 trillion
• 59% of 2025 YTD returns now from non-MAG7 (broadening signal)

Portfolio Impact Calculator

If you hold an S&P 500 index fund and MAG7 drops 20%:

• Your portfolio drops ~7% from MAG7 alone
• Equal-weight S&P 500 (RSP) has only ~3% MAG7 exposure

Diversification Consideration

The 2025 market broadening (59% of returns from non-MAG7) suggests concentration may be peaking. Investors concerned about single-stock risk may consider:

• Equal-weight S&P 500 exposure (RSP)
• Sector-specific exposure outside Big Tech
• International diversification

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What to Watch in Q4 2025 Earnings

Company	Key Metric to Watch	Grade Change Trigger
GOOGL	Cloud margin expansion	Upgrade to A+ if margin >27%
AMZN	AWS growth acceleration	Upgrade to A if growth >25%
MSFT	Capacity constraint status	Downgrade if supply exceeds demand
AAPL	Services growth rate	Downgrade if growth <10%
NVDA	Gross margin sustainability	Downgrade if margin <70%
META	Capex intensity trajectory	Upgrade if capex <35% revenue
TSLA	FSD revenue contribution	Upgrade if FSD >5% of revenue

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Methodology & Data Sources

Valuation Framework

This scorecard uses sector-appropriate metrics rather than uniform P/E comparisons:

Sector	Framework	Why
Semiconductors	PEG Ratio, Cycle-adjusted P/E	Accounts for cyclicality
Auto/Hybrid	Sum-of-parts	Separates core business from optionality
Cloud/SaaS	Rule of 40, EV/Revenue	Standard SaaS valuation
Digital Ads	Operating margin, FCF Yield	Capital efficiency focus
Consumer Tech	Segment-weighted	Different economics for hardware vs services

Data Sources

• All financial metrics sourced from SEC EDGAR filings via MetricDuck API
• Calculation period: TTM (trailing twelve months) as of Q3 2025
• Forward estimates: Consensus analyst estimates from FactSet/Bloomberg
• Market data as of December 13, 2025

Limitations

Limitation	Impact	Mitigation
Segment-level data	Cannot precisely calculate segment multiples	Use disclosed 10-K segment data
Forward estimates	PEG relies on consensus growth	Note uncertainty ranges
Sum-of-parts (TSLA)	Optionality valuation is subjective	Provide probability-weighted ranges
Cycle-adjusted P/E	Requires earnings normalization	Use 8Q average as proxy

Grade Definitions

• A: Best risk-adjusted value; appropriate metrics support current valuation with upside
• B: Fair value; fundamentals justify valuation but limited margin of safety
• C: Concerns present; valuation relies on optimistic assumptions
• D: Significant risk; valuation requires optionality that may not materialize

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Primary Sources

Data and analyst perspectives in this scorecard are sourced from:

1. SEC EDGAR Filings: NVDA, TSLA, AAPL, MSFT, GOOGL, AMZN, META
2. Morningstar: Is It Time to Buy the Magnificent 7?
3. 24/7 Wall St: Most Overvalued Magnificent Seven Stock
4. Nasdaq: Only Magnificent Seven Stock Cheaper Than S&P 500
5. CNBC: Tesla Market Share Analysis

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Related Analysis

• How to Track AI Capex Efficiency — Framework for monitoring hyperscaler capital spending
• The Depreciation Divergence — Why Amazon's accounting signals quality
• Buyback Effectiveness Analysis — Which companies create shareholder value
• ROIC Stock Screening Framework — Sector benchmarks for capital efficiency

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Explore More AI Infrastructure Research

This article is part of our comprehensive AI Infrastructure Hub, which covers capex efficiency metrics, depreciation manipulation detection, and supply chain analysis.

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