TJ PorterBy T.J. Porter, WCI Contributor

People in the world of finance like to come up with exciting names and acronyms to use when discussing important companies and stocks. While many people have heard of things like blue chip stocks or FAANGs, the Magnificent 7 is a relatively new turn of phrase.

The Magnificent 7 was coined in 2023 by Michael Hartnett, an analyst with Bank of America. He used the name for a group of seven companies that have experienced significant returns in the past few years thanks to their massive impact on the market, technology, and consumer behavior.

 

What Companies Are Part of the Magnificent 7?

The Magnificent 7 is made up of seven American companies.

  • Alphabet (owner of Android, Google, YouTube, and more)
  • Amazon
  • Apple
  • Meta Platforms (owner of Facebook, Instagram, and WhatsApp)
  • Microsoft
  • NVIDIA
  • Tesla

 

Magnificent 7 Historical Returns

The Magnificent 7 is perceived as having a major impact on American consumers, and that outsized influence is reflected in their stock performance over the past few years. Some companies in the Magnificent 7 have seen their shares jump in value by more than double with some rising nearly 1,000%.

 

Company 6-Month Return 1-Year Return 5-Year Return
Alphabet 14.57% 48.84% 158.7%
Amazon 43.67% 78.17% 98.63%
Apple -1.97% 2.44% 245.63%
Meta 65.36% 137.17% 187.49%
Microsoft 32.30% 46.92% 251.97%
NVIDIA 103.37% 220.21% 1,775.20%
Tesla -35.53% -13.56% 818.44%
S&P 500 (for comparison) 22.33% 26.46% 80.30%

(As of April 3rd, 2024)

 

Though returns have been variable for some of these companies in the past year, all of them have nearly doubled in value over the past five years with NVIDIA and Tesla seeing massive gains.

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What’s Driving the Magnificent 7?

The S&P 500, one of the most popular benchmarks for the American stock market, has seen significantly lower returns than the Magnificent 7 over the past five years. While the market as a whole has had an 80% increase, the Magnificent 7 has easily outpaced the competition, and it is responsible for a large portion of the market’s growth.

magnificent 7

What’s driving the Magnificent 7’s returns? One major factor is its global scale. Each of the companies on the list operates internationally and does large amounts of business outside the United States. That means they’re able to capture a much larger market than companies that focus only on a few countries.

Another factor is brand recognition. Almost everyone knows about and uses Amazon, Google, Microsoft, Facebook, and Apple products. NVIDIA has made a big name for itself in the world of AI, and Tesla is owned by the (in)famous Elon Musk who also owns other well-known companies like X and SpaceX.  That level of brand recognition is a boon to any company, and it’s hard to think of other businesses that are even close to as well-known.

Market share is also a key player for many of these companies. Alphabet has a stranglehold on internet search with Google and a big role in streaming video with YouTube. Amazon dominates online shopping, Meta owns some of the most popular social media platforms, Apple makes some of the most popular consumer electronics on the planet, and Microsoft’s software offerings are used across the globe.

Finally, each company has successfully adapted in the face of rapid change. They survived the upheavals brought on by the COVID-19 pandemic, and they have adjusted to meet changing consumer desires and to take advantage of new technology like AI.

 

What Risks Do the Magnificent 7 Face?

The Magnificent 7 have performed well over the past five years, but there are no guarantees that they’ll continue their success in the future. Just like other businesses, these companies face risks. Investors interested in the Magnificent 7 should consider these risks before investing.

One major risk is regulatory. Technology is constantly changing, and new regulations are introduced to limit the negative effects of some technologies. Many of the companies in the Magnificent 7 have previously faced regulatory battles.

In 2023, for example, the FTC sued Amazon for using monopolist strategies to weaken competition. Meta and Alphabet have faced lawsuits regarding their handling of customer data and privacy. Microsoft has a long history of regulatory and litigation problems, and Tesla’s labor practices and self-driving features have led to a number of lawsuits and regulations.

As regulations change, Magnificent 7 companies will need to adapt. It’s also possible that regulation could include antitrust measures that force the companies to entirely adjust their business models or sell off some of their business ventures.

Each of the Magnificent 7 also is closely related to technology. That makes both technological advancement and cybersecurity major risks. As technology advances and new technology, such as AI, matures, these companies could see themselves overtaken by new entrants to the market or by competitors. The Magnificent 7 are also major targets for cyberattacks. A breach that leaks key research and development information or damages the companies’ reputations could cause significant financial losses. 

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Magnificent 7 vs. FAANG

Magnificent 7 is a term used to refer to a group of stocks, but it isn’t the only such term that’s become popular. Another similar term is FAANG, which refers to a group of five technology companies:

  • Facebook (now known as Meta)
  • Apple
  • Amazon
  • Netflix
  • Google (now known as Alphabet)

There is a significant crossover between FAANG stocks and the Magnificent 7. Netflix is the only outlier, failing to join the ranks of the Magnificent 7.

Like the Magnificent 7, FAANG companies are among the largest and best-known in the world, and they have experienced major gains in the past few years. However, they face many of the same risks, and some investors fear that FAANG stocks could be in the middle of a bubble.

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Should You Invest in the Magnificent 7?

Before making any investing decisions, you need to consider your goals, reasons for investing, and risk tolerance. It’s true that the Magnificent 7 has vastly outperformed other companies over the past five years, but there’s no guarantee that the trend will continue. There could still be significant upside if these companies can take advantage of the opportunities that ever-changing technology presents, but there are just as many risks that could cause them to stagnate or fall in value.

Keep in mind that these companies are among the largest in the world, so if you own shares in index funds, technology-focused mutual funds, or ETFs, you already have significant exposure to these businesses.

Consider the risks and, if you believe that the Magnificent 7 will continue to outpace the rest of the market and want greater exposure to them than you get from your existing investments, you can consider purchasing shares.

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