What Are the Magnificent Seven?
“Magnificent Seven” was originally a reference to a 1960 Western film, “The Magnificent Seven,” which was directed by John Sturges and depicts a group of seven gunmen. In the world of finance, the term has been repurposed to reference a group of seven high-performing and influential stocks in the technology sector, borrowing from the meaning of a powerful group.
Bank of America analyst Michael Hartnett coined the phrase in 2023 when commenting on the seven companies commonly recognized for their market dominance, their technological impact, and their changes to consumer behavior and economic trends: Alphabet (GOOGL; GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA).
Key Takeaways
- The Magnificent Seven stocks are a group of high-performing and influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.
- Bank of America analyst Michael Hartnett used the film name in 2023 when commenting on these seven firms.
- The performance of the Magnificent Seven stocks is driven by technological innovation, market dominance, financial performance, brand equity, research and development, and global economic conditions.
- The FAANG stocks and Magnificent Seven stocks have some key differences.
For investors considering Magnificent Seven stocks, it is essential to understand their unique position in the market. These companies are at the forefront of sectors such as artificial intelligence, electric vehicles, cloud computing, and digital services, and still have the potential for significant growth.
Yet, investing in them still carries risks since these factors have already been priced in. There are also the usual risks of market volatility, regulatory changes, technological disruptions, and global economic conditions that can influence their performance.
Therefore, while these stocks present exciting prospects, they also require a nuanced understanding of the technology sector’s prospects and a strategic investment approach.
The Magnificent 7 Stocks
The Magnificent Seven stocks are a group of the most influential companies in the U.S. stock market. This term has been popularized to describe a set of dominant companies, particularly in the tech sector.
The group comprises Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla, and spans four sectors: technology services, electronic technology, retail trade, and consumer durables. They operate across these industries: Internet software/services, telecommunications equipment, Internet retail, packaged software, semiconductors, and motor vehicles.
“They are the highest quality names out there and, frankly, if we do go into a recession next year...I actually think the Magnificent Seven will hold up better,” King Lip, chief strategist for BakerAvenue Wealth Management, told Reuters in November 2023.
Historical Performance of the Magnificent 7 Stocks
The table below displays the performance of the Magnificent Seven stocks over the last six months, one year, and five years.
| Magnificent Seven Stock Performance (6 months, 1 year, 5 years) | |||
|---|---|---|---|
| Name | 6 Months (%) | 1 Year (%) | 5 Years (%) |
| Alphabet Inc. (GOOG) | 31.77% | 57.31% | 241.22% |
| Amazon Inc. (AMZN) | 26.46% | 50.52% | 104.61% |
| Apple Inc. (AAPL) | 9.98% | 14.72% | 331.31% |
| Meta Platforms Inc. (META) | 42.93% | 81.95% | 170.72% |
| Microsoft Corp. (MSFT) | 20.26% | 36.25% | 236.55% |
| NVIDIA Corp. (NVDA) | 153.75% | 209.81% | 3,130% |
| Tesla Inc. (TSLA) | -23.02% | -19.27% | 1,240% |
:max_bytes(150000):strip_icc()/Screenshot2024-06-27at11.23.19AM-76135386776f488b8faafb5aceee0749.png "Magnificent 7 Stocks: What You Need to Know (1)")
Over the past five years, NVIDIA has led the pack with an impressive return of approximately 3,000%, closely followed by Tesla, which has had a robust performance with over a 1,200% gain. All others had returns exceeding 100%, with Apple exhibiting the highest return at approximately 330%.
Factors Driving the Magnificent 7 Stocks
The group of stocks known as the Magnificent Seven are at the forefront of technological changes across the economy, and they consistently develop new products and services that drive consumer demand and business growth. Here are other traits common among the Magnificent Seven stocks:
- Adaptability: Each has adapted to changing market conditions, including shifts in consumer behavior and technological advances, by continuing to invest in research and development.
- Financial health: All have had strong financial health, robust earnings, revenue growth, and healthy balance sheets, making them attractive to investors for their growth.
- Global reach: Their operations and influence span the globe, allowing them to tap into diverse markets and benefit from international growth.
- Strong market position: The Magnificent Seven have strong market positions in their sectors, often holding the dominant market share that gives them a competitive edge.
- Worldwide brand recognition: The Magnificent Seven companies have strong brand recognition and a loyal customer base, which should mean consistent revenue streams and the ability to introduce new products successfully.
Because of their size and reach, these companies all face regulatory risks. Regulation changes, especially in data privacy, antitrust laws, and international trade, can significantly influence these companies. More broadly, widespread economic changes affect them because of their broad reach, including interest rates, inflation, economic growth, consumer confidence, and investor sentiment.
The Magnificent 7 Stocks Compared to FAANG
In finance and investing, FAANG is an acronym for the shares of five major American tech giants: Meta Platforms (previously Facebook, hence the “F”), Amazon.com, Apple, Netflix (NFLX), and Alphabet (previously Google, hence the “G”). Jim Cramer, host of CNBC’s “Mad Money,” and technical analyst Bob Lang coined the term in 2013, inserting an extra “A” for Apple in 2017.
FAANG and the Magnificent Seven are both groups of dominant technology firms, yet they have notable differences. The Magnificent Seven group contains a wider array of technology and innovation-driven companies than the more narrowly focused FAANG.
Note
Investing in an S&P 500 ETF will provide you exposure to all Magnificent 7 and FAANG stocks.
It includes behemoths like Microsoft and Tesla, extending its clout across diverse sectors such as software development, hardware, electric vehicles, and artificial intelligence. By contrast, FAANG stocks are predominant within Internet services, e-commerce, and digital media.
Characterized by their robust growth, market-leading roles, and influence across various technology domains, the Magnificent Seven capture a broader spectrum of the tech industry. Conversely, FAANG is renowned for its rapid expansion, particularly in the Internet and digital media segments. In recent years, it has been pivotal in driving the technology sector’s rally.
Thus, while both groups have overlapping members and are powerful forces in the tech world, the Magnificent Seven have more extensive representation across the tech sector.
Risks and Challenges of the Magnificent 7 Stocks
Like any investment, putting your money into the Magnificent Seven stocks means taking on risks and challenges. Despite their strong market positions and record of driving technology forward, these companies face factors that could determine their performance. Here are some of them:
- Currency fluctuations: As global entities, these companies face risks associated with currency exchange rate fluctuations, affecting their earnings and stock prices.
- Cybersecurity threats: As technology companies, the Magnificent Seven are prime targets for cyberattacks. A significant breach could lead to substantial financial losses and damage their reputations.
- Economic downturns: Global economic conditions, such as recessions or market downturns, can undermine consumer spending and business investment, transforming their revenues and growth prospects.
- Geopolitical tensions and trade policies: International operations expose these companies to geopolitical risks, including trade wars, tariffs, and changing international relations, which can affect their global supply chains and market access.
- Key person risk: Some of these companies are closely associated with their founders or executives, whose departure or loss could dampen investor sentiment and the company’s direction.
- Market saturation and competition: As these companies continue to grow, they will face challenges in finding new markets and maintaining their growth rates. Increased competition from established players and emerging startups can also threaten their market share. In short, by leading their markets, they are also the targets for any competitors looking to make a mark in their industries.
- Regulatory and legal risks: Tech giants have long been under scrutiny for antitrust concerns, data privacy, and tax practices. Changes in regulations or legal challenges can have significant financial and operational impacts. Many of them have been investigated for monopolistic practices, and if they are to increase their already dominant shares of their markets, they will face more scrutiny.
- Technological disruption: Rapid technological change means these companies must continuously innovate to stay ahead. Failure to adapt to new technologies or trends could lead to a loss of market relevance.
What Is the Total Market Capitalization of the Magnificent 7 Stocks?
The total market capitalization of the Magnificent Seven stocks was $16 trillion as of June 26, 2024.
- AAPL: $3.27 trillion
- AMZN: $2.01 trillion
- GOOG: $2.28 trillion
- META: $1.30 trillion
- MSFT: $3.36 trillion
- NVDA: $3.11 trillion
- TSLA: $626 billion
Are There Magnificent 7 ETFs?
Yes, there are Magnificent 7 ETFs. One such ETF is the MAGS Magnificent 7 ETF by Roundhill Investments. You can also gain exposure to the magnificent stocks by investing in ETFs that hold them, such as any ETF that tracks the S&P 500.
How Would the Magnificent 7 Be Influenced by Inflation?
The impact of inflation on the Magnificent Seven is complex. Some key ways that inflation would affect these companies include higher costs for materials, labor, and other operational expenses. Inflation can reduce consumers’ purchasing power, decreasing spending on nonessential goods and services.
Also, central banks ordinarily respond to high inflation by raising benchmark interest rates. Higher interest rates increase borrowing costs for companies, harming their investment and expansion plans. Nonetheless, the effect of inflation can vary within the Magnificent Seven group and depends on the company’s specific business model, cost structure, and market position.
The Bottom Line
The Magnificent Seven stocks represent a cohort of high-performing companies that have garnered significant attention in the investment world for their market dominance, technological advances, and growth potential.
These stocks, which include Microsoft, Tesla, and NVIDIA, along with some FAANG members, are known for their influence across various sectors, such as software, hardware, electric vehicles, and artificial intelligence. They have been pivotal in driving technological trends and shaping consumer behavior, making them attractive to investors seeking growth and market leadership.
However, investors need to know the risks and challenges associated with these stocks. The dynamic nature of the technology sector, regulatory scrutiny, market saturation, and global economic factors like inflation and geopolitical tensions can affect their performance. Additionally, high market valuations bring lofty expectations, and any failure to meet these can lead to significant stock price corrections.
Thus, while the Magnificent Seven offer potential for substantial growth, they also require careful analysis and a balanced approach considering their strengths and the various external factors that could influence their future trajectory.
Article Sources
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Companiesmarketcap. "Largest Companies by Market Cap."
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