The Magnificent Seven Stocks: What You Need to Know

The Magnificent Seven Stocks: What You Need to Know

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Serving as a group of high-performing US companies, seven technology giants have dominated not only the headlines but have also reinforced the US stock market in the past year. 

The Nasdaq Composite Index (which covers more than 3,000 stocks listed on the Nasdaq stock exchange) delivered an eye-watering +43.0% total return in 2023 and, in 2024, hit all-time highs of 16,538. What’s incredible is that two-thirds of those returns came from just seven stocks: the Magnificent Seven, a term coined by Bank of America analyst Michael Hartnett. 

The Magnificent Seven consists of a group of mega-cap US technology companies that include Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META), Tesla (TSLA) and Alphabet (GOOG). Remarkably, according to the Bloomberg Magnificent Seven Total Return Index (BM7T: IND), the total return for the seven stocks is +75.0% based on a 1-year return, while year-to-date (YTD) gains are +19.0%. Given the size of these seven companies, this meteoric rise is huge. Since the beginning of 2023, for example, Nvidia has notched up an astonishing gain of +550.0%, with nearly +240.0% seen in 2023, followed by Meta and Tesla adding an eye-popping +194.0% and +101.0%, respectively, also in 2023. 

The Magnificent Seven has all but replaced the importance of the FAANG Index, which covers Facebook, Amazon, Apple, Netflix (NFLX) and Google (although this index has also continued to outperform as well), an Index created by CNBC presenter Jim Cramer. While there's some overlap, the Magnificent Seven is not simply an updated version of the FAANG stocks. Netflix was replaced by Microsoft and Meta Platforms due to their distinct areas of influence and recent performance.

What’s Behind the Rally?

ChatGPT’s Chatbot was released in late 2022 and essentially redefined Artificial Intelligence (AI). Since the release, companies around the world have explored ways of adopting this technology and similar technology. Given the unprecedented growth of AI, It would be an understatement to say that AI has most businesses on their toes.

Outperformance and revenue growth in the Magnificent Seven companies are largely attributed to this emergence of AI, recognised as one of the most substantial and influential developments in technology since the Internet. All seven companies are at the forefront of AI development and are constantly pushing boundaries in AI, cloud computing, e-commerce and other critical sectors.

Nvidia, a market leader in computer chips, has benefitted hugely from the surge of AI. Its cutting-edge GPUs are in high demand for AI, gaming and data centres. Increased demand saw shares rally strongly in 2023, as noted above, with 2024 on track to replicate this performance (+87.0% YTD). In under 18 months, the company also added US$2 trillion in value. The thing to remember here is that as AI grows, so will companies like Nvidia. A caveat to bear in mind, however, is that the semiconductor industry is known for its boom/bust cycles.

Other companies in the Magnificent Seven also continue to benefit from AI. Google and Microsoft, both cloud giants in the industry, are major players and constantly update their AI technology. Google recently launched Gemini, a collection of improved generative AI models. Another example, of course, is Meta, which has invested heavily in Nvidia’s graphics processing units to fuel its AI systems. This will include things like more interactive chatting functions.

Correction Ahead?

Powering major market indexes higher, such as the Nasdaq Composite mentioned above, as well as the S&P 500 (which added +24.0% in 2023 and recently hit an all-time high of 5,261), there is concern about an increased risk of a correction unfolding or another 1990s Dotcom bubble. The rationale behind this is that while the seven stocks underpinned market averages in 2023, all generating sizeable returns, Tesla and Apple are down -29.0% and -12.0% YTD, respectively. The question is whether the Magnificent Seven possibly becoming the Magnificent Five in 2024 leaves the stock market vulnerable to a potential reversal.