A friend of a friend asked me a few weeks ago whether it was a good time to start investing. While my answer is generally yes — getting the ball rolling is certainly a smart move — I was hesitant because markets were riding high.
Indeed, both the FTSE 100 and S&P 500 indexes were at record levels. Some well-known tech stocks, including Tesla (NASDAQ: TSLA) and Palantir, looked grossly overvalued to me. Like an overly frothy latte, a bit probably needed skimming off the top.
But I wasn’t expecting the earthquake unleashed by President Trump’s tariffs last week, which sent share prices tumbling. Then the plot thickened yesterday (9 April) as the market absolutely surged when most higher tariffs were paused by Trump.
So, is now a good time to start investing? I’d say it is. The tech-driven Nasdaq remains nearly 15% off its recent high, while many stocks are 20%+ lower than they were in February.
Consequently, I still see a lot of value around.
Mag 7 stumble
The last US bull market was driven by excitement about the artificial intelligence (AI) revolution. The so-called Magnificent Seven group of AI-related tech stocks — Alphabet (NASDAQ: GOOGL), Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla — were all the rage.
However, these have all pulled back sharply in recent weeks, as we can see below.
| Fall from 52-week high | |
| Alphabet | -22% |
| Amazon | -21% |
| Apple | -23% |
| Meta | -21% |
| Microsoft | -16% |
| Nvidia | -24% |
| Tesla | -43% |
While these seven are all world-class tech companies, lumping them together makes little sense to me. They’re distinct businesses with different growth rates and opportunities, as well as risks and challenges.
Take Tesla, whose shares have fallen the most. The brand has become a political symbol since CEO Elon Musk aligned himself directly with the Trump administration. This appears to be turning off some potential buyers, with sales plummeting across Europe.
Meanwhile, Tesla is facing rising competition, notably from BYD. The Chinese EV giant is extremely vertically integrated, even making its own batteries and semiconductors. Therefore, it’s able to churn out high-quality EVs and hybrids at bargain-basement prices, which is fuelling impressive growth in China, Latin America and Europe.
Tesla can still turn things around, especially if Musk returns to it full time and finally launches the long-awaited robotaxi network. But the stock’s price-to-earnings ratio is 133, which is far too high for my liking.
Gobsmacking Google valuation
Having said that, some Magnificent Seven stocks now look very attractive to me. One is Alphabet, the firm behind Google and YouTube.
After its pullback, the stock is trading at just under 18 times forecast earnings for 2025, which is lower than the wider S&P 500. At that price, I see a lot of value, even if a recession were to cause a downturn in digital advertising across its search and YouTube businesses (this is a risk).
The rise of generative AI bots like ChatGPT was meant to threaten Google’s search empire. However, revenue in its core search business grew 12.5% to $54bn in Q4, which is very impressive.
Moreover, advances like AI Overviews in search are actually increasing user engagement, according to the firm. While ever users aren’t shifting significantly away from Google, advertisers will continue to spend heavily on search-based ads.
Therefore, I think investors starting out today could consider Alphabet stock at its current valuation.
