Wall Street is souring on ‘Magnificent 7’ stocks after group’s worst earnings season since 2022
The “Magnificent Seven,” once Wall Street’s indisputable stalwart, is losing its shine with investors. The group — made up of Apple , Microsoft , Alphabet , Amazon , Nvidia , Meta Platforms and Tesla — led the market higher in the past few years amid growing investments around artificial intelligence. In the past 12 months, Nvidia and Tesla have rallied 87% each, while Meta has soared more than 52%. That’s well ahead of the S & P 500’s 20% advance in that time. But the Magnificent Seven’s market stronghold has diminished slightly, as the cohort struggles to meet ever-loftier expectations, and investors rotate into other parts of the market such as small caps. Tech titans also took a hit in late January after the emergence of Chinese startup DeepSeek raised concern over how much spending will be needed to implement AI capabilities. Now, investors seem to be turning their backs on the stocks following their worst earnings season in a few years — which included Apple missing its iPhones sales expectations and Amazon posting disappointing current-quarter guidance . “Excluding NVDA, which is yet to report results, the group posted combined 4Q 2024 revenue that was in line with expectation. This marks the first quarter with no positive sales surprise for the Mag 7 since 2022,” wrote Goldman chief U.S. equity strategist David Kostin. “The Magnificent 7 has been a pillar of S & P 500 sales and earnings growth during the last few years, but the magnitude of surprises has declined.” Morgan Stanley Wealth Management chief investment officer Lisa Shalett echoed Kostin’s sentiment in a Monday note. “Anxiety has continued to build around Magnificent Seven generative artificial intelligence-related capex spending and the extent to which players appear engaged in a multiyear race for dominance. Amid this development, Mag 7 earnings growth rates have been decelerating and are poised to continue to do so, converging with those expected from ‘the 493’ non-Mag 7 stocks,” she remarked. Investors appear to already be shifting assets to other parts of the market. Financials and real estate are the best-performing S & P 500 sectors of the past month, rising 8.5% and 7%, respectively. Tech, on the other hand, is lagging with just a 1.3% advance in that time. XLF XLRE,XLK 1M mountain Financials, real estate and tech in past month Indeed, expectations have skyrocketed for the stocks alongside their valuations, making now a “prudent” time for investors to begin lowering their exposure, according to Trivariate Research. Microsoft, for example, trades at 31 times forward earnings, while the S & P 500 sports a multiple around 22. Founder Adam Parker also noted: “The high beta and increasingly high capital intensity combined with the elevated valuation of the Magnificent 7 is, in our judgment, an increasing cause for concern.” In the same note, Parker argued that with so much buy- and sell-side exposure to the group, it’s challenging for investors to uncover anything about the stocks that haven’t already been priced in. “On a beta-adjusted basis the current exposure of the Mag-7 is 44.7%,” he wrote, noting that’s near a 25-year high. “This means that a portfolio manager who owns in market-weight all the Magnificent 7 stocks has nearly half their fund’s beta-adjusted exposure in these stocks.” Parker also pointed to the cohort’s high capital spending as another point likely to “come under increasing scrutiny until investors can better understand the return on today’s massive investments.”
