What are the Magnificent 7 stocks? (2024)

First, there was FANG. Then came FAANG. Now we have the Magnificent 7. Each label represents a catchy way to categorize the monster outperformers of the stock market over the past decade.

Today, the seven market-leading stocks that make up the Magnificent 7 dominate the economy and, in many ways, will continue to dominate how you invest your money, even if their collective armor is starting to show some cracks.

Understanding Magnificent 7 stocks

Facebook, Amazon, Netflix and Google. That was FANG. Concocted by financial media personality Jim Cramer and his colleague, Bob Lang, in 2013, the acronym changed to FAANG when Apple was added to the group in 2017.

But in 2015, Google officially became known as Alphabet. And, in 2021, Facebook started going by Meta Platforms to represent its entire ecosystem, including Instagram and WhatsApp. Then, two more huge tech stocks emerged as market outperformers: Microsoft and Nvidia.

FAANG was losing its bite as a way to describe the group.

As the group’s market dominance continued, Michael Hartnett, managing director and chief investment strategist at Bank of America Global Research, came up with the Magnificent 7, introducing the term in a 2023 research note. It caught on.

All the Magnificent 7 stocks, or Mag 7 for short, are either pure technology companies or — as is the case with automaker Tesla, streaming service Netflix and online retailer Amazon.com — tech-adjacent, meaning their corporate cultures tend to be like those of pure tech firms. They also use technology, much of it developed in-house, to deliver their products and services and power their ecosystems.

Inspired by the 1960 American Western, “The Magnificent Seven,” Hartnett told CNN Underscored Money that the “Film was always on TV at Christmas during childhood in the UK.” Then, after the 2023 failure of Silicon Valley Bank and “catalyzed by AI investor thirst for mega-cap, monopolistic tech giants that investors thought gave ‘all-weather’ upside in an ambiguous macro backdrop … we found seven, hence the name.”

These seven companies — Meta Platforms, Amazon, Apple, Netflix, Alphabet, Microsoft and Nvidia — all “have monopolistic/oligopolistic positions, pricing power, secular earnings power, balance sheets that can finance AI and so on,” Hartnett explained.

Performance analysis of Magnificent 7 stocks

To put the outperformance of the Magnificent 7 stocks in perspective, consider that the S&P 500 increased by 24.2% in 2023. As a group, the Magnificent 7 generated a 75.7% return.

Individually, here is how the Magnificent 7 stocks performed in 2023:

• Nvidia (NVDA): +239%
• Meta Platforms (META): +194%
• Tesla (TSLA): +102%
• Amazon (AMZN): +81%
• Alphabet (GOOG, GOOGL): +58%
• Microsoft (MSFT): +57%
• Apple (AAPL): +48%

To a stock, they all trounced the S&P 500 over the same period.

In March 2024, the S&P 500 index attained a new closing high eight times, culminating in a year-to-date return of 10.2%, as of the end of March. The Magnificent 7 stocks were responsible for 37% of that 2024 upside.

However, not all Magnificent 7 stocks have fared as well in 2024 — individually — as in 2023. In fact, as of the end of March, Tesla was down 29%, making it the S&P 500’s worst-performing stock, and Apple was off nearly 11%.

Fast forward and, through the end of April, the one-month returns for the S&P 500 and the Magnificent 7 looked like this:

• S&P 500: -4.2%
• Alphabet: +8%
• Meta Platforms: -11%
• Apple: -1%
• Microsoft: -8%
• Nvidia: -4%
• Tesla: +4%

Alphabet and Tesla are the only stocks in positive territory. And three Magnificent 7 stocks lagged the S&P 500 over this one-month snapshot.

Only time will tell how the rest of 2024 shakes out, but two things are clear: First, the broad stock market, as measured by the S&P 500, is experiencing some downside. Second, some members of the Magnificent 7 are underperforming the S&P 500. But these aren’t the only risks associated with investing in the Magnificent 7.

Risks when investing in Magnificent 7 stocks

Overconcentration

Our performance analysis shows that one of the biggest considerations when investing is the risk of being over-concentrated in the Magnificent 7 stocks.

When the Magnificent 7 group does well, it does really well, propelling the S&P 500. When the Magnificent 7 doesn’t do so well, some of the highest fliers in the group take a relative beating.

Because the based on a company’s market capitalization, the largest companies comprise an outsized portion of the index. While the exact concentration changes frequently as the market caps of the member companies fluctuate, the Magnificent 7 composed 29.1% of the S&P 500 at the end of April.

Many investors will invest in the broad stock market via a low-cost index ETF, such as the SPDR S&P 500 ETF Trust, which tracks the S&P 500, or the Invesco QQQ ETF, which mirrors the composition and, subsequently, returns of the Nasdaq 100 index. As illustrated, the Magnificent 7 takes up an overweight segment of the S&P 500 (both the index itself and the ETFs that passively track it). This effect is even more pronounced in the tech-heavy Nasdaq 100, where the Magnificent 7 accounts for 40.5% of the index, as of the end of April 2024.

You’ll encounter a similar dynamic in many other index ETFs, especially ones that invest in the broad stock market or focus on the tech sector. While the current stumbles do not necessarily portend future downside, the past strong performance of the Magnificent 7 and, in turn, the S&P 500 isn’t a guarantee of future results.

AI and economic risks

Doug Cohen, managing director, portfolio management at Fiduciary Trust International identified the “key risk” of investing in the Magnificent 7 stocks as being overly reliant on mega-cap stocks sensitive to broad economic conditions and uncertainty around the future of artificial intelligence (AI).

“A sustained rise in interest rates due to, say, a rebound in inflation or increased concerns … [related] to surging US debt levels could weigh on most mega-cap growth stocks,” Cohen said. “As for AI, there are certainly some parallels with the 2000 internet boom/bust. If it turns out that practical AI applications don’t meet the initial hype or that regulation stymies growth, the momentum could certainly fade.”

To this end, Cohen sees increased competition in the spaces where the Magnificent 7 operate.

“That’s true in the case of AI broadly but also in the auto industry, within online advertising and semiconductors geared toward AI. There is also broad regulatory pushback on the antitrust front both in the US and Europe,” he said.

While Cohen sees “parallels” to the year 2000, he added: “Unlike the 2000 Internet bubble when concentration level within the S&P 500 was similar to the Magnificent Seven but the companies themselves were collectively only marginally profitable, the Magnificent Seven currently comprise about 22% of both trailing and next 12-month expected earnings. That’s not outrageous given their collective growth levels, strong balance sheets and growth opportunities. I think that 22% threshold is appropriate for investors who wish to avoid heavy exposure to a group of stocks that can often be highly correlated.”

As for Hartnett, who coined the Magnificent 7 name, he cautioned that the“Magnificent 7 have become magnificently priced.” At the peak in early April, the group comprised 31% of the overall S&P 500. In other words, just seven stocks accounted for nearly a third of the value of the entire index, Hartnett explained, noting that “such concentration of returns is always vulnerable to bad news, e.g. loss of pricing power (think Tesla), rising rates and so on.”