Despite being the darlings of Wall Street in recent years, the fortunes of the Magnificent Seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla – may now be shifting in step with market sentiment.
Concerns over capital expenditure, valuations, and lacklustre earnings growth have raised red flags for the powerful tech stocks, which have moved in different directions in recent months.
Nvidia and Tesla added a startling 87% to their stock prices in the last 12 months, with Meta gaining 52%, far outpacing the strong performance of the S&P500, which gained 20% in the same period.
Despite that, in the current year to-date, only Meta has managed double-digit gains, while Tesla has fallen 17% and the rest of the Mag7 has fallen an average of 3% according to Yahoo Finance numbers.
Unimpressive earnings growth
While Nvidia has yet to publish its earnings report, the other Magnificent Seven stocks have failed to impress investors or analysts.
“Excluding Nvidia, which is yet to report results, the group posted combined Q4 2024 revenue that was in line with expectation. This marks the first quarter with no positive sales surprise for the Mag 7 since 2022,” Goldman Sachs’ chief US equity strategist David Kostin noted.
There are growing concerns over Artificial Intelligence (AI) investment, especially after Chinese-based DeepSeek demonstrated Generative AI is possible to build at a fraction of the cost expected.
“Anxiety has continued to build around Magnificent Seven generative artificial intelligence-related capex spending and the extent to which players appear engaged in a multiyear race for dominance,” Morgan Stanley Wealth Management CIO Lisa Shalett said.
“Amid this development, Mag 7 earnings growth rates have been decelerating and are poised to continue to do so, converging with those expected from ‘the 493’ non-Mag 7 stocks.”
Analysts turn bullish on Mag 7
Some analysts now believe the Magnificent 7 stocks are over-valuated.
Trivariate Research founder Adam Parker warned, “The high beta and increasingly high capital intensity combined with the elevated valuation of the Magnificent 7 is, in our judgment, an increasing cause for concern.”
Microsoft, for instance, trades at 31 times forward earnings, while the S&P 500’s multiple stands around 22.
Parker also pointed to the group’s dominance in portfolios.
“On a beta-adjusted basis, the current exposure of the Mag 7 is 44.7%—near a 25-year high,” he said.
“This means that a portfolio manager who owns in market-weight all the Magnificent 7 stocks has nearly half their fund’s beta-adjusted exposure in these stocks.”
With the Magnificent Seven losing momentum, investors are shifting toward other sectors.
Financials and real estate were the best-performing S&P 500 sectors in the past month, rising 8.5% and 7%, respectively, while tech lagged with just a 1.3% gain.