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Bank of America strategist Michael Hartnett coined the term “Magnificent 7” stocks to refer to the most dominant technology companies.The group consists of megacap stocks apple (AAPL), alphabet (Google), microsoft (MSFT), Amazon.com (AMZN), meta platform (meta), tesla (TSLA) and Nvidia (NVDA).
In 2023, the 7 Magnificent stocks posted an impressive average return of 111%. By comparison, the broader S&P 500 index returned 24%.
Here is the individual performance of the seven Magnificent stocks over the past 10 years.
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| stock | 10 year return |
|---|---|
| microsoft | 904% |
| Amazon.com | 635% |
| Nvidia | 12,480% |
| meta platform | 545% |
| apple | 842% |
| alphabet | 392% |
| tesla | 2,290% |
He says there is a reason why these stocks led the domestic stock market in 2023. Daniel Ducina, Certified Financial Planner and Investment Director at Blue Chip Partners. “These companies have some of the highest earnings growth rates among large-cap domestic stocks, and most have businesses that are exposed to long-term trends.”
While these returns are certainly impressive, these Magnificent 7 stocks aren’t perfect. Even seemingly invincible stocks can have problems (remember 2022, when all seven of these stocks ended the year with double-digit loss percentages). Therefore, smart investors should always be aware of the market environment and diversify their portfolio.
With that in mind, let’s take a closer look at each of the Magnificent 7 stocks.
microsoft
(Image source: Getty Images)
The recent turmoil at OpenAI, in which the board abruptly fired CEO Sam Altman, threatened Microsoft’s $13 billion investment in the company. However, this event turned out to be a big plus. Microsoft CEO Satya Nadella deftly managed the crisis, with Altman eventually returning to the helm and strengthening partnerships with artificial intelligence (AI) companies.
OpenAI is the clear leader in sophisticated generative AI technology, which MSFT leverages for a range of applications. Analysts at Jefferies expect Microsoft’s Office 365 Copilot to generate about $19 billion in revenue by fiscal year 2025.
The company is actively expanding into other categories. There will also be co-pilots aiming for big opportunities such as CRM and cybersecurity. So while Microsoft has a high price-to-earnings multiple of 35, the premium is reasonable given its long-term growth potential.
Amazon.com
(Image source: Getty Images)
In terms of operating profit, Amazon.com’s cloud business is the main driver. The problem is that business has been under pressure over the past year or so. However, this is unlikely to last long.
why? Generative AI.
Although Amazon was slow to invest in this technology, the company was able to regain a lot of ground.This was evident at a recent press conference. AWS re:Invent conference So Amazon announced enhancements to its Bedrock platform and also revealed details about its Q chatbot. These technologies will certainly help fuel his AWS growth as customers rapidly adopt generative AI.
Nvidia
(Image credit: Costfoto/NurPhoto (via Getty Images))
Over the years, Nvidia CEO Jensen Huang is betting big on AI. His vision was that the GPU (graphics processing unit) would be at the heart of this technology.
Without a doubt, this was a hit and NVDA became a growth machine. Sales in the latest quarter more than tripled from the same period last year to $18.1 billion.
But Nvidia is more than just a chip company. It has a full-stack technology platform for running advanced AI applications. These include networking functions and a software system called Cuda, which is essentially an operating system. These assets have turned Nvidia’s advantage into a strong moat.
As AI continues to grow, so will Nvidia.
meta platform
(Image credit: SOPA Images/Getty Images)
Meta platforms are starting to accelerate their growth again. Parent company Facebook’s sales in the third quarter of 2023 increased 23% year-on-year to $34.1 billion. In addition to gaining traction with Instagram Reels, AI is also becoming a factor and helping improve advertising results. Given Meta’s large user base, even small enhancements can have a big impact on sales.
In the meantime, the company has invested in its own large-scale language model called Llama 2. It has become the first choice for companies looking for an open source platform.
In the short term, the main catalyst for meta is likely to be the upcoming US presidential election. This will result in a surge in advertising, with a significant portion going to the meta.
apple
(Image credit: Costfoto/NurPhoto (via Getty Images))
apple is suffering from declining sales as its smartphone business matures, but the company shouldn’t be ignored. Apple has the advantage of a large customer base that it can leverage, including a profitable services business.
“They offer Apple TV, music and other services,” said Glenn Tompkins, the company’s senior global market strategist. vector vest. “People are deeply involved in the ecosystem, and many never leave.”
The company could also get a boost from AI.Apple recently announced Release of MLX, an open source framework for Apple Silicon. It is a platform that helps build AI projects and has already shown promise against competing systems.
alphabet
(Image credit: Cesc Maymo/Getty Images)
Alphabet Inc.’s Google has seen a recovery in its core search and advertising businesses, but concerns remain about its AI efforts. Although the company’s researchers were pioneers in generative AI, commercialization has been slow.
But Google is trying to make up for lost ground. Its new model, Gemini, seems to be cutting edge. The company is also actively implementing this system across its apps. Additionally, Google is developing new AI products for code development, cybersecurity, healthcare, and more. These can create new growth opportunities for companies.
tesla
(Image credit: Karol Serewis/SOPA Images/LightRocket, Getty Images)
Tesla remains the category leader, even as competitors like Ford Motor Co. and General Motors Co. spend billions on electric vehicles. You benefit from modern infrastructure for production and charging networks.
“We expect the conversation to shift to increasing share and deeper penetration within the auto industry,” he says. Tejas Desai, AVP and Research Analyst at Global X. “Tesla’s attempt to create price competition on the back of significant operational efficiencies from its larger scale has been a net positive for consumers, and competitive pressure is likely to continue. Tesla’s real profit margin capture will likely come through value-added services such as self-driving software.”
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