What are Magnificent 7 stocks and how to trade and invest in them

What are the Magnificent 7 stocks?

The Magnificent 7 stocks are a selection of seven leading companies known for high-performing and fundamentally strong shares. This curated group of stocks is made up of Alphabet (the parent company of Google), Amazon, Apple, Meta (owner of Facebook, WhatsApp and Instagram), Microsoft, Nvidia and Tesla.

Magnificent 7 stocks selection criteria

The criteria for selecting the Magnificent 7 incorporates in-depth analysis of financial metrics – eg robust balance sheets and consistency of earnings growth – as well as qualitative factors such as unique competitive advantages and market position. These criteria are assessed to identify companies with significant growth potential that are likely to perform consistently.

The selection process aims to ensure that each chosen company has the resilience and strategic advantage to prosper under various market conditions.

Here’s a closer look at some of the main aspects that are considered in the selection process:

• Financial strength: analysis of revenue growth, profitability and cash flow stability to gauge a company’s financial health and operational efficiency

• Sustainability of business model: examination of the long-term sustainability of the company’s business model, including its adaptability to shifting market trends

• Competitive advantage and market position: evaluation of how the company differentiates itself from similar businesses as well as how it’s perceived by consumers

• Corporate governance and management quality: review of the robustness of the company’s governance practices and efficiency of the company’s management

• Macroeconomic factors and global market dynamics: analysis of broader economic conditions, including global market trends, that could influence company performance

Which companies make up the Magnificent 7?

The Magnificent 7 stocks grouping is made up of some of the leading firms in the world. These companies are generally acknowledged for their fundamental contributions to internet services, hardware, software, artificial intelligence (AI), electric vehicles, social media and related technology.

They are:

1. Alphabet
2. Amazon
3. Apple
4. Meta
5. Microsoft
6. Nvidia
7. Tesla

These companies typically demonstrate strong market stability, growth potential and remarkable performance, all of which has positioned them as big attractions in technology trends and trading and investment opportunities.

These companies are also included in other groupings of prominent, influential and high-performing technology stocks such as GAFAM and FAANG.

GAFAM stands for Google (now Alphabet), Apple, Facebook (now Meta), Amazon and Microsoft. FAANG, on the other hand, stands for Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet) – it’s considered to be a previous version of what’s now known as the Magnificent 7 stocks. This could be because the Magnificent 7 is generally regarded as an updated reflection of the tech industry's current leaders and their impact on the stock market.

Magnificent 7 stocks to watch

Monitoring influential companies’ shares can be potentially beneficial in today's fast-evolving market. The Magnificent 7 – which are chosen for their growth potential under current economic conditions, market position and recent performance – may offer unique opportunities.

Here’s how each innovates in a nutshell:

1. Alphabet: parent to Google, Alphabet makes substantial revenues from internet-related services and products, online advertising as well as cloud computing and consumer hardware. The company also invests in advancements like AI and autonomous driving

2. Apple: with its diverse range of consumer electronics and services – such as the iPhone, iPad, Mac computers, Apple Music and iCloud – the company has shown consistent growth through global expansion

3. Amazon: a global leader in e-commerce and cloud computing that started out as an online bookstore, the company is thriving from increased online shopping and remote working solutions through Amazon Web Services (AWS)

4. Microsoft: as a pioneer and major player in the personal computer revolution, the company’s software and cloud services have become some of the most widespread in the world, eg the Windows operating system and Office productivity suite

5. Meta: one of the largest social media and technology corporations today, this company continues to shape the digital networking and advertising landscape, pioneering in the metaverse arena with new investments in virtual reality

6. Nvidia: this company is best known for designing and manufacturing graphics processing units (GPUs) for gaming PCs, workstations and supercomputers. It has expanded into other areas of computing, including AI and machine learning, data centres and high-performance computing, autonomous vehicles and robotics, and cryptocurrency mining hardware

7. Tesla: a frontrunner in electric vehicles, the company is known for its disruptive approach as well as ambitious projects, including advancements in the automotive industry's shift toward sustainability. It also has operations in clean energy solutions like solar panels and innovative battery technology

It's important to note that the composition of the Magnificent 7, and the individual companies’ performances, can change over time.

While these companies have shown strong performance historically, past performance doesn't guarantee future results. Diversification and careful risk management crucial when considering trading and investing in these or any shares.

How to trade and invest in the Magnificent 7 stocks with us

1. Learn about the Magnificent 7 stocks
2. Decide whether you want to trade or invest
3. Draw up your trading or investment plan
4. Create a live account or log in*
5. Look for your Magnificent 7 stocks opportunity
6. Manage your risk and take your position
7. Monitor and close your position*

* While trading is usually done in the short to medium term, investment positions are typically held long term. With us, you’ll trade using a contract for difference (CFD) trading account. To invest with us, you’ll use our share trading account.

You can use our demo account to practise CFD trading without risking any real money.

ETFs tracking the Magnificent 7 stocks

The Roundhill Magnificent Seven ETF (MAGS) provides pure-play exposure to an equally weighted portfolio of the Magnificent 7 stocks in a single position.

You can also use exchange-traded funds (ETFs) with a significant portion of their holdings in the Magnificent 7 to get exposure to these seven tech giants.

Such ETFs include:

• Vanguard Mega Cap Growth ETF (MGK): tracks the CRSP US Mega Cap Growth Index, which holds 88 securities in its basket, with the Magnificent 7 collectively accounting for 56.6% of the total assets
• Invesco S&P 500 Top 50 ETF (XLG): the fund measures the cap-weighted performance of 50 of the largest companies on the S&P 500 index. It holds 55 companies’ shares in its basket and the Magnificent 7 accounts for a combined 49.2% share
• iShares S&P 100 ETF (OEF): iShares S&P 100 ETF offers exposure to 101 of the largest US companies. The Magnificent 7 accounts for a combined 41.1% share

Risks of trading or investing in the Magnificent 7 stocks

Trading or investing in shares that belong to the Magnificent 7 grouping – while potentially lucrative – comes with several risks, including:

• Concentration risk
• Valuation concerns
• Regulatory risks
• Market volatility
• Technology sector risks like cybersecurity threats and potential for major breaches
• Sensitivity to prevailing economic conditions
• Competition
• Geopolitical risks
• Interest rate sensitivity
• Momentum trading effects, eg popular shares can be subject to herd behaviour and the risk of sharp sell-offs if sentiment turns negative

What is the difference between the Magnificent 7 and FAANG stocks?

The Magnificent 7 and FAANG stocks are both groupings of prominent, high-performing technology companies, but the latter is considered to have been replaced by the former. This could be due to the Magnificent 7 generally being regarded as an updated reflection of the tech industry's current leaders and their impact on the stock market. However, both groupings can change over time as market conditions and company performances evolve.

Here are some key differences between the two:

Magnificent 7 stocks summed up

• The Magnificent 7 stocks consist of technology companies with recent significance in performance and market position, as well as promising prospects for future growth
• These select large, high-performing companies are Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla; the composition of this grouping and the individual companies’ share performances, can change over time
• They’re characterised by and selected based on factors such as market influence and dominance, innovation and growth, competitive advantage and market cap
• They’re also included in other groupings of prominent, influential and high-performing technology stocks such as GAFAM and FAANG
• Traders and investors often consider them as important assets to watch in a shifting economic landscape
• While there are potentially lucrative opportunities in trading and investing in these companies, there are also risks, which you may be able to manage via diversification and using tools such as stop-losses