I am officially predicting the end of the ‘Magnificent Seven’. That’s right, it’s over.
Not to say that the companies that make up the buzz phrase will all crumble, or that they will not appear in a new acronym. But the days of referring to them as a single entity must surely be numbered.
The phrase was borne out of the meteoric rise of technology stocks that soared on the back of the artificial intelligence (AI) theme: Alphabet, Apple, Amazon, Meta Platforms, Microsoft, Tesla and Nvidia.
Many have been here before. Meta, Alphabet, Apple and Amazon were all part of the fabled FAANGs (remember them?), with poor old Netflix being booted out of the latest catchy investment phrase.
But the next iteration could be upon us soon if performance does not pick up for some of the bottom companies on the list.
Amazon, for example is up just 2% over the past three years, despite a 44.7% rise over the past 12 months. Could it find itself on the chopping block like Netflix was previously?
After a phenomenal run over the past five years, Tesla is also struggling. Many have queried the firm’s place in the electric car market, with competition from China and Europe emerging, and shares are down 8.4% over the past year.
In fact, despite the hype, only one – Nvidia – has doubled investors’ money over three years, up an incredible 528%.
So why could this be the beginning of the end for the newest market buzz phrase? Well, US tech stocks plummeted on Wednesday this week, with the Nasdaq down 3.6% on the day, while other US indices such as the S&P 500 fell 2.3%.
It is the largest fall for the technology-heavy Nasdaq index since 2022 and was spearheaded by members of the Magnificent Seven – in particular Alphabet, which exceeded expectations but still fell, and Tesla, whose results underwhelmed.
Garry White, chief investment commentator at Charles Stanley, said the “astonishing bull run” of the Magnificent Seven was always due to come under pressure given that the stocks were “priced for perfection”.
“As we saw with Tesla and Alphabet after their earnings report, any slight misstep will be a concern for investors.”
Richard Clode, manager of the Global Technology Leaders Team at Janus Henderson Investors, clearly does not agree with my suggestion that this is the beginning of the end for the seven firms.
“Big picture, it’s worth remembering that we had a similar period of digestion and profit-taking in the summer of 2023 after a strong first-half performance and even year-to-date, we had a similar sell-off in April,” he said, adding that despite “narratives created to try and justify this … not a huge amount has changed”.
However, I would contend that things have changed. The stocks are expensive and some of their drivers are overly reliant on a still-speculative AI theme.
At least with the FAANGs, the companies were spread widely across technology, rather that all grouped by the same investment theme.
As soon as even some of the air comes out of the AI bubble, those dependant on the theme could fall away, giving rise to a new group, which is likely to include some of the names in this one, with others replaced.