Magnificent 7 to watch, the "Magnificent Seven" refers to a group of seven influential technology companies include Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla.
The "Magnificent Seven," comprising large-cap tech firms—Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG/GOOGL), Meta (META), and Tesla (TSLA)—saw gains of 63% in 2024, following a remarkable 75% increase the year before. While there were challenges, including a record low performance in July, the ongoing boom in artificial intelligence (AI) continued to bolster these tech giants.
The combined profits of the Magnificent Seven surpass those of most countries' entire stock markets. Their earnings significantly outshine other firms in the U.S. Without this group, the aggregate earnings per share of the S&P 500 would have contracted in 2023 instead of growing. In 2024, their profits accounted for approximately 75% of the S&P 500's earnings growth.
However, in 2025, growth is expected to diversify as the Magnificent Seven slows down and other companies gain momentum. Their share of S&P 500 earnings growth is predicted to decline to just 33%, partly due to the strong performance they are comparing against from the previous year.
Though the Magnificent Seven is anticipated to continue outperforming in 2025, the gap will be narrower than in recent years. Goldman Sachs forecasts that this group will collectively outperform the remaining 493 stocks in the S&P 500 by 7 percentage points—marking the smallest margin in seven years.
Nvidia has established itself as the clear leader among the Magnificent Seven since the group was first identified in 2023. Its stock surged 171% in 2024, driven by soaring sales and earnings from AI accelerator demand. Wall Street analysts remain bullish on Nvidia, with no recommendations to underweight or sell the stock.
Despite facing a correction later in the year, analysts from Bernstein, Morgan Stanley, and Bank of America have all identified it as a top pick for 2025, confident that strong demand for its next-generation Blackwell chips will continue to drive exceptional growth.
Tesla could be in for a pivotal year. CEO Elon Musk has taken on a significant advisory role with President-elect Donald Trump, co-leading a group focused on reducing government spending. Musk's connection to Trump has been credited with Tesla's 63% stock gain last year—up just 1% on election day—and this relationship may continue to influence the stock.
Musk has made bold promises for 2025, including the introduction of a more affordable model, the rollout of full self-driving software in Texas and California, and the potential sale of Optimus, the company's humanoid robot.
However, the outlook for Tesla's core business—electric vehicles—remains uncertain. Trump is expected to eliminate federal tax credits for EVs, which could make Tesla less accessible to consumers. Additionally, persistent high interest rates may further hinder affordability.
Throughout 2024, Wall Street raised questions about the wisdom of Big Tech's investments in AI infrastructure. Companies like Microsoft, Amazon, and Alphabet invested tens of billions in data centers, facing skepticism about the returns on these investments.
As the AI trend matures into its third year, analysts anticipate a shift in focus from building AI capabilities to deploying and monetizing AI products. Goldman Sachs refers to this transition as "Phase 3" of the AI evolution, suggesting that software and services providers are well-positioned for growth during this phase.
Additionally, JPMorgan analysts caution that Big Tech's extensive spending could begin to have negative repercussions this year in the form of higher depreciation costs.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
