Is the Magnificent 7 Craze Ending? "Individual Outlooks Are Important"

MS, Amazon, Meta, and Nvidia Smile
Alphabet, Apple, and Tesla Struggle
The Leading Trend of Market-Dominating Companies Remains Unchanged

In the U.S. stock market, claims have been made that the influence of the "Magnificent 7" (the seven major tech stocks) is not as strong as before. This is because investors are focusing more on the concrete results of companies rather than blindly getting excited about artificial intelligence (AI).

On the 4th (local time), major foreign media reported that the gap among the Magnificent 7?Microsoft (MS), Apple, Amazon, Alphabet, Meta, Tesla, and Nvidia?is widening.

[Image source=Reuters Yonhap News]

Jim Tierney, growth-focused portfolio manager at AllianceBernstein, said, "Last year, everyone benefited from the halo effect of AI," adding, "But now the market has started to focus on the individual outlook of each company instead of treating the Magnificent 7 as a single stock. They are no longer traded as a block."

Among the Magnificent 7, MS, Amazon, Meta, and Nvidia have generally performed well this year following last year, but Alphabet is considered to be underperforming the S&P 500 index. Tesla and Apple have shown the largest declines among these seven companies.

Nvidia's stock surged last year, continuing the AI trend. Meta, MS, and Amazon also increased their investments in AI technology, but analyses suggest that stock prices fluctuate due to general factors beyond AI. For example, Meta's stock rose following the announcement of its first dividend. On the other hand, Apple's stock was subdued due to disappointing sales news from China, and Tesla fell after warning of slowing growth.

Unlike before, when simply promoting AI guaranteed attention, investors are now focusing on the tangible results brought by AI. Fawaz Choudhry, head of equities at Fulcrum Asset Management, said, "Investors are looking at the details," adding, "Tesla was overhyped at least in terms of AI. Apple has not been clear on how it will monetize the data secured through AI."

At the end of 2023, the stock market rally continued as inflation stabilized, but recently, pressure on companies has increased. The U.S. Federal Reserve (Fed) dismissed the possibility of an early rate cut, cooling investor sentiment. Analysts say that the previous investor focus on the stock market was a result of the Fed's expected rate cut later this year being already priced into the market.

Market experts point out that specific company performance has become more important to drive stock price increases. The recent case of pharmaceutical company Eli Lilly surpassing Tesla's market capitalization is in a similar context. Eli Lilly's stock nearly doubled over the past year thanks to its weight-loss drug. This shows that there are positive factors beyond AI.

As a result, some on Wall Street argue that the Magnificent 7 should be renamed the Magnificent 6, excluding Tesla. There are also opinions that instead of the traditional seven major tech stocks, the "AI 5"?Nvidia, MS, AMD, TSMC, and Broadcom?will become the trend.

However, it is still assessed that a small number of "leading" companies continue to drive the market. Although Apple, Tesla, and Alphabet have been replaced by Eli Lilly, Berkshire Hathaway, and AMD, last year the top seven companies led 60% of market profits, and now that share has reached 80%, according to analysis. Market research firm FactSet expects that while S&P 500 companies' earnings grew by 1.6% in Q4 last year, earnings excluding the Magnificent 7 actually declined by 8%.

Michael Grant, head of long- and short-term strategy at Calamos Investments, said, "There will be more differentiation among large-cap stocks. But we must not forget why these companies have dominance," adding, "Earnings prospects for the stock market excluding them are quiet."

This content was produced with the assistance of AI translation services.