It's time to replace Tesla and Apple shares with Oracle and Broadcom in the "Magnificent Seven," says Vimal Patel - manager of Columbia Seligman Global Technology, a fund that invests in technology companies. Patel's view is worth heeding: his fund has outperformed its peers by an average of six percentage points a year over the past five years, noted MarketWatch columnist Michael Brasch. Patel has taken a tough stance on companies that feed investors hope but show no real technological breakthroughs.

What's wrong with Tesla

Columbia Seligman Global Technology Fund doesn't hold Tesla stock because of stiff competition in the electric car market - both from traditional automakers and new Chinese players. "There is a price war going on out there," Patel noted. The fund manager warned that this would lead to slower sales growth and lower prices, which in turn would hit margins.

The analyst is also skeptical about the prospects for robot cabs and Optimus humanoid robots. He said it remains to be seen whether Tesla will be able to touch Google's Waymo or succeed in robotics.

"We don't invest in hopes and dreams," Patel noted.

What's wrong with Apple

Apple is still among the leaders thanks to a loyal audience firmly embedded in its ecosystem of devices, services and software. But users are tired of little meaningful iPhone updates, Patel says. "We're all waiting for a new round of iPhone growth - and we haven't waited until now," he noted.

The fund manager noted the company's large backlog in the field of artificial intelligence. The iPhone maker is also under pressure from geopolitical risks associated with President Donald Trump: despite the fact that Apple has moved part of its supply chain to India, a significant share of production still remains in China. That means Apple is particularly vulnerable to a U.S.-China trade war.

"Of all the Magnificent Seven, they are the ones most exposed to this risk," Patel argues. - They are not in the best position to get through the duty standoff unscathed.

Why Patel suggests buying Oracle stock

The company used to be a key database software vendor, posting steady revenue growth in the mid-single digits (i.e., around 4-7%). But now Oracle is moving to a new level by developing a cloud platform that can compete with similar products from Amazon, Microsoft and Google, Patel said.

"The company is becoming the next hyperscaler (operator of huge data centers. - Oninvest)," he says. - They're starting to really show what they can do."

Oracle's cloud services (infrastructure and applications) revenue in the latest quarter increased 27% to $6.7 billion. Total revenue climbed 11% to $15.9 billion. According to Patel, Oracle's revenue for the next year should grow 16% to $67 billion. By comparison, in the previous 12 months, growth was 9%.

Why Patel suggests buying Broadcom stock

Tech giants Amazon, Alphabet and Microsoft are buying universal AI chips from current market leader Nvidia because they are easy to program. But that makes them expensive and power-intensive, Brasch writes. To cut costs, they're increasingly developing their own custom chips for specific tasks (ASICs). And Broadcom is one of the main companies helping them do that. Broadcom's partners include Google, Meta, and Apple. 

"Instead of spending huge sums of money on Nvidia chips, cloud providers order their own solutions from Broadcom. This radically reduces costs and power consumption," explains Patel.

Broadcom's AI chip revenue in the latest quarter increased 46% to $4.4 billion, with total revenue growth of 20% to $15 billion. Next quarter, the company expects AI chip sales to grow 60% year-over-year to $5.1 billion.

At the end of the first quarter, Broadcom stock held the largest weighting in the Patel fund's portfolio, the MarketWatch columnist noted.

What Patel thinks of the rest of the Magnificent Seven stocks

- Nvidia should continue its strong growth thanks to sustained demand for AI infrastructure, says an analyst. The company's next leap will come from the proliferation of enterprise AI products such as Microsoft Copilot, Patel explains.

- Microsoft and Amazon will also continue to grow due to cloud services in demand amid AI developments, the fund manager said.

- Meta benefits from the adoption of AI in advertising products: the platform helps clients create campaigns using artificial intelligence.

- Consumer businesses - retail at Amazon and advertising at Meta and Alphabet - are feeling stable, Patel said.

- Shares of Alphabet are attractive from a valuation perspective, with the securities trading at a P/E (price-to-earnings forecast) ratio of 19.4 - that's 17% below the five-year average, according to LSEG data. Pressure on the stock is driven by fears that AI search will replace Google Search, but Alphabet's current implementation of AI Overview (quick answers) successfully competes with products like ChatGPT, Patel countered.

This article was AI-translated and verified by a human editor

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