What’s next for the Magnificent 7 stocks?
The Magnificent 7, which comprises several of the largest companies in the world, is at a pivotal juncture. Here’s what you need to know.
What is the Magnificent 7?
The Magnificent 7 refers to a group of highly influential large-cap technology companies listed in the United States, but with a stranglehold on technology across the developed world. The term was coined by Goldman Sachs analyst David Costin back in 2017, using it to refer to Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia and Tesla.
These companies are all leaders in their respective industries — whether consumer electronics, cloud computing, social media, AI or EVs. All have consistently reported strong profit and revenue growth, and all are valued in the trillions of US dollars.
They are arguably at the forefront of innovation, have seen massive share price growth over the past few years, and due to their massive market capitalisations, represent a significant portion of the revenue growth and weighting of major indices including the NASDAQ 100 and the S&P 500.
However, some analysts are concerned that the Magnificent 7 may be in a bubble — the S&P 500 saw its second consecutive annual gain of more than 24% in 2024 — and the last time this happened was in 1998. What happened thereafter was not particularly pleasant for speculative investors.
These seven shares are worth roughly a third of the index, and the S&P 500 now sports a price-to-earnings ratio significantly above the 25x recorded before the dot-com crash of 1999.
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DeepSeek Disruption
The massive rise in the market capitalisations of the Magnificent 7 has arguably been driven by the rise of artificial intelligence — with Nvidia in particular spearleading the charge, rising to an incredible market valuation of circa $3.6 trillion in late January 2025 — driven by demand for its advanced semiconductors (microchips), which until very recently were assumed to give the US titan a wide economic moat.
However, over the weekend, there has been significant disruption to the artificial intelligence narrative. Chinese start-up DeepSeek’s LLM ChatBot has rapidly risen to first place on the App Store, and in some areas outperforms competitors including Microsoft-backed OpenAI’s ChatGPT and Alphabet-owned Gemini.
The problem is that DeepSeek is claiming that it has been developed on outdated microchips, and on a shoestring training budget of circa $6 million — where the US titans have poured billions of dollars of capital expenditure into training their own models.
Critics speculate that DeepSeek has instead simply reverse engineered their model using open-source large language models like Llama — or have perhaps sourced advanced Nvidia GPUs through Singapore, bypassing bans put in place by the US government.
DeepSeek was founded by CEO Liang Wenfeng, a former hedge fund manager, who launched the app with a focus on optimisation and open-sourcing. However, given previous Chinese exaggerations and the clear incentives to undermine US artificial intelligence companies, there is significant doubt over whether the company has actually achieved what has been claimed.
For context, China is investing circa $137 billion over the next five years through its New AI Industry Development Action Plan — which will doubtless be competing with the recently announced $500 billion Stargate Project in the United States.
However, regardless of the truth, DeepSeek’s overnight success could pose a threat to Nvidia. Several analysts have compared Nvidia to Cisco's dot-com crisis; if Nvidia’s most advanced chips are no longer required to the same degree to advance artificial intelligence, then there could well be an oversupply — which could lead to a share price correction, which could expand into contagion of the wider Magnificent 7.
Earnings Season Starts
As noted above, the Magnificent 7 tech titans led market gains last year, with the S&P 500 rising by some 25% in 2024 alone. With stocks riding high on the Trump-Musk train — amid promises to cut taxes and loosen regulation — billionaire tech CEOs have largely attempted to curry favour with the US President, with many attending Trump’s inauguration.
However, DeepSeek’s unveiling has sent the tech stocks plummeting just before earnings come out. And given the consistent earnings beats, investors have come to expect significant jumps in revenue every quarter, which is arguably not possible in the long run.
Indeed, many analysts consider that the Magnificent 7 exists within a larger tech bubble; others think the new technology is so transformative that the premium valuations can be justified.
Magnificent 7 results incoming
These stocks have been listed by market capitalisation:
Apple (NASDAQ: AAPL)
Apple shares have been under pressure not just from DeepSeek’s wider market effect, but due to company-specific concerns over the market share of its flagship iPhone. For context, Jefferies recently downgraded the stock to ‘underperform’ with a price target of $200.75 —with weaker iPhone sales and concerns on low consumer interest in artificial intelligence creating weaker confidence.
For perspective, Counterpoint Research data indicates that iPhone sales fell by 18.2% in China in Q4, and the iPhone has also lost its top spot in the country to domestic producer Huawei. However, Q4 results saw revenue rise by 6% year-over-year to $94.9 billion, while adjusted EPS beat estimates of $1.59 at $1.64.
Microsoft (NASDAQ: MSFT)
Microsoft recently signed a new agreement with investee OpenAI, altering the exclusivity terms of their partnership. The computing titan now plans to invest some $80 billion into AI initiatives during this fiscal year — and has also launched Copilot features powered by AI into its Office Suite.
In its fiscal Q1, Microsoft reported EPS of $3.30, surpassing the $3.10 analyst consensus — while revenue came in at $65.6 billion, beating the $64.5 billion estimate.
Despite these strong results, some analysts are concerned about profit margin pressure during Q2 as AI-related spending ramps up. In particular, the primary focus remains on driving growth in its Azure cloud business, but while this segment has grown exponentially, growth is not cheap.
Nvidia (NASDAQ: NVDA)
Nvidia has seen its shares double over the past year, which perhaps makes the market particularly sensitive to any potential disappointment.
For context, Q3 saw Nvidia deliver strong results — revenue came in at $35.1 billion, exceeding the $33.2 billion average analyst estimate — and EPS was $0.81, beating the $0.74 consensus. However, gross margins declined slightly, and Q4 revenue guidance stands at an even higher $37.5 billion. However, Barclays remains optimistic on the stock, recently increasing its price target from $160 to $175.
Amazon (NASDAQ: AMZN)
Amazon continues to prioritise growth in its market-leading AWS cloud business, which saw revenue increase by 19% year-over-year in Q3 to some $27.5 billion. Overall, Q3 revenue came in at $158.9 billion — beating the forecast by $1.6 billion — while EPS was also a beat at $1.43, above the $1.16 estimate
For Q4, Amazon has provided guidance for net sales of between $181.5 billion and $188.5 billion and operating income in the range of $16 billion to $20 billion, compared to $13.2 billion in Q4 2023.
AWS growth (or perhaps how much growth) will remain the key focus, though advancements in AI and margin expansion within the e-commerce segment will also be closely watched.
Alphabet (NASDAQ: GOOG)
Alphabet is currently battling significant regulatory challenges, including a DOJ proposal to force the company to sell its Chrome search engine due to monopoly concerns. President Trump has also previously expressed concerns about Google’s dominance, though specifics on breaking up the business are not in the public domain.
In Q3, Alphabet’s EPS came in at $2.12, surpassing the $1.83 estimate — while it also saw revenue of $88.27 billion, beating the $86.44 billion forecast. AI remains its key growth area, though Google Search is perhaps struggling with integrating AI-powered overviews. Alphabet has also projected advertising revenue to increase by 9.5% this quarter, which sets a benchmark for potential share price performance.
Meta Platforms (NASDAQ: META)
Meta Platforms' CEO Mark Zuckerberg views AI as a ‘once-in-a-generation’ opportunity. However, investors are wary of these kinds of big statements, especially given the money sink that was investment into the Metaverse that have yet to bear financial fruit. For perspective, Meta plans to have spent $15 billion on AI in Q4 alone.
Meta reported strong Q3 results, with EPS of $6.03 beating the $5.25 estimate, though its revenue of $40.5 billion only narrowly beat the $40.2 billion forecast. For Q4, Meta has provided revenue guidance of somewhere between $45 billion to $48 billion, compared to the average analyst forecast of circa $46.09 billion.
Tesla (NASDAQ: TSLA)
Tesla shares rallied after Trump’s Presidential election victory, largely due to CEO Elon Musk’s political alignment with the Republican. However, the company saw vehicle deliveries struggle in 2024, with 1.78 million vehicles delivered — falling short of the 1.8 million estimate. And critics are also concerned that the EV manufacturer is facing ever stiffer competition both from Chinese domestic manufacturers and from US legacy producers catching up to the EV trend.
Q3 results appear mixed, with Tesla reporting revenue of $25.18 billion, missing the $25.4 billion consensus, though EPS of $0.72 beat the $0.60 estimate. It’s probably worth highlighting Tesla’s gross margin, which came in significantly higher than expectations at 19.8%.
Looking forward, Tesla plans to begin the production of affordable EV models in the first half of the year, which will shape its battle with rivals for years to come.
Magnificent 7 summed up
- The Magnificent 7 refers to a group of highly influential large-cap technology companies listed in the United States
- The term was coined by Goldman Sachs analyst David Costin back in 2017, using it to refer to Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia and Tesla
- These companies are all leaders in their respective industries — whether consumer electronics, cloud computing, social media, AI or EVs.
- They represent a significant portion of the revenue growth and weighting of major indices including the NASDAQ 100 and the S&P 500.
- Some analysts are concerned that the Magnificent 7 may be in a bubble, with Chinese start-up DeepSeek claiming that it has been developed on outdated microchips, and a shoestring training budget
- Earnings season is upon us with elevated expectations given repeated beats in 2024
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