The ‘Magnificent Seven’ stocks grew 46% in the last 5 years. Can they keep it up?

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The ‘Magnificent Seven’ stocks grew 46% in the last 5 years. Can they keep it up?

By Greg McKenna | Fortune Magazine | July 15, 2024

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Bank of America analyst Michael Hartnett popularized the “Magnificent Seven” as a stock term just over a year ago. The movie-inspired moniker refers to Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, which accounted for half of the S&P 500’s total gains last year, according to a report from Morgan Stanley. Like the acronym FAANG before it, the “Magnificent Seven” has served as a strategy for some investors—raising the question of how much longer this particular basket of stocks will have an outsize influence.

Whether the term—a reference to an acclaimed 1960 western that Hartnett used in a May 2023 note to investors—has outgrown its relevance is up for debate. What’s not is that shareholders have been rewarded with a combined annualized return of over 46% in the last five years, compared to just over 13% for the S&P.

Angelo Zino of CFRA Research said he expects the earnings trajectory of these seven names to continue to outperform the market over the next decade.  “They’re what we view as growth at a reasonable price,” Zino said.  Those high-quality earnings, Zino said, have been especially attractive in a high-interest rate environment, even before the artificial intelligence boom captivated markets.  Magnificent Seven present both AI opportunity and defensive play.

The importance of large-cap stocks to the market is not a new phenomenon. A January report from Vanguard found that out of thousands of stocks, only 72 had accounted for half of the market’s total returns since 1926. The trend held even when excluding the explosion of mega-cap tech growth that has inspired several acronyms over the last decade.

CNBC’s Jim Cramer popularized the term FANG (for Facebook parent Meta, Amazon, Netflix, and Google parent Alphabet) in 2013. Eventually, a second A was included to include Apple.

That term would eventually give way to the Magnificent Seven, a gorup of companies who boast a combined market capitalization of over $16 trillion and loom large in not just the markets but daily life.   This visibility helps makes these stocks a relative safety net for investors.  All seven companies, Zino said, have massive ecosystems that will presumably become only easier to monetize in the age of AI.

2 key takeaways from the article

1. Bank of America analyst Michael Hartnett popularized the “Magnificent Seven” as a stock term just over a year ago. The movie-inspired moniker refers to Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, which accounted for half of the S&P 500’s total gains last year.
2. Like the acronym FAANG before it, the “Magnificent Seven” has served as a strategy for some investors—raising the question of how much longer this particular basket of stocks will have an outsize influence.  
3. Market expects the earnings trajectory of these seven names to continue to outperform the market over the next decade.  Combined market capitalization of over $16 trillion, daily life visibility of these companies and their massive ecosystems help make these stocks a relative safety net for investors.  And will presumably become only easier to monetize in the age of AI.

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Topics:  Capital Markets, Alphabet, Amazon, Apple, Tesla, Nvidia, Meta, Microsoft