Key Takeaways
- After leading the S&P 500's gains in 2023, five of the Magnificent Seven — a group of stocks made up of Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia and Tesla — are outperforming the S&P 500 so far in 2024.
- Growth concerns have weighed on Tesla's stock price. Apple surged after its artificial intelligence announcement in June but has underperformed Nvidia and the other seven Magnificent stocks in the first half of the year.
- Some experts say it could become even harder for companies to meet investor expectations, and some believe the rally in Big Tech stocks could spread to the broader market.
Enthusiasm for artificial intelligence (AI) has led many of the Magnificent Seven stocks to outperform the market in 2024 so far, but a few are struggling to keep up.
Looking ahead to the second half of the year, experts have warned that the group, which includes Microsoft (MSFT), Amazon (AMZN), Meta (META), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA), and Tesla (TSLA), may have a harder time meeting investor expectations, raising questions about how long big tech companies' AI momentum can last.
Most of the Magnificent Seven companies outperformed the S&P 500 in 2024, but Apple and Tesla lagged.
After the Magnificent Seven stocks led the S&P 500's gains in 2023, the divergence in performance between stocks within the group has widened in 2024. Nvidia has more than doubled since the start of the year, while Tesla has fallen nearly 1%.
Meta shares rose 44%, while Alphabet rose 33%. Amazon and Microsoft rose 30% and 22%, respectively, buoyed by AI-related growth. These stocks, along with Nvidia, outperformed the S&P 500, which rose 16%. Apple slightly underperformed the index but rose 15% as the iPhone maker's shares gained momentum in the second quarter, driven by AI announcements.
Tesla is the only one of the Magnificent Seven stocks whose shares have fallen since the start of 2024, prompting calls to reconsider whether the electric car maker should be in the group. But shares have surged since July, and better-than-expected second-quarter deliveries have nearly erased losses since the start of the year. Some analysts have suggested the latest numbers could be a “tipping point” for Tesla.
Trading View
If expectations are too high, it may be hard for the Magnificent Seven stocks to impress investors.
Steve Sosnick, chief strategist at Interactive Brokers, told Investopedia that the question now becomes “who can deliver” on investor expectations for the Magnificent Seven.
Sosnick expressed concern about how these companies will deliver on investor AI-driven expectations, especially given the long development times and potential payback period for big tech companies' AI investments that could be years away.
Goldman Sachs analysts expect second-quarter profits from Nvidia, Meta, Alphabet, Amazon, Microsoft and Apple to rise 30% year over year, compared with a 9% increase for the S&P 500 and a 5% increase for the rest of the market. Disappointments are “likely to be painful,” the analysts said.
Seven big moves that will impact the entire market
Stock price movements are likely to have a major impact on the broader market over the coming months. Nvidia, Meta, Alphabet, Amazon and Microsoft accounted for 62% of the S&P 500's return in the first half of this year.
Sosnick said the market is being driven by a “fairly small number of names” and is “very top-heavy.” “For better or worse, we live or die with them.”
Solita Marcelli, chief investment officer at UBS, said that UBS[s] The rally is likely to extend, and investors should not ignore opportunities beyond recent U.S. tech leaders.”
