The Magnificent Seven Stocks Driving the Market

The “Magnificent Seven” is more than a collection of America’s most influential technology stocks. It’s more than a bloc representing a massive slice of the U.S. equity market. And it’s more than a pair of Westerns that drew their inspiration from Akira Kurosawa. It’s the latest love letter from Wall Street in its longstanding romance with cutesy nicknames. You can trace this affair back roughly a decade ago, to 2013, when The Street’s Bob Lang coined the term “FANG” (Facebook, Amazon, Netflix, Google). The Street founder Jim Cramer soon poured gasoline on the term by repeatedly shouting it from his CNBC show Mad Money. The FANGs evolved over time, becoming the FAANGs (added Apple), FAAMGs (booted Netflix, added Microsoft), and for a mercifully brief period to account for corporate moniker changes, Jim Cramer proposed the new term MAMAA (Microsoft, Apple, Meta Platforms, Alphabet, Amazon). Just like “fetch,” though, MAMAA didn’t happen. The Magnificent Seven is merely the latest iteration—an expanded umbrella that covers even more of today’s most important tech stocks. So today, I’m going to tell you how the Magnificent Seven came about, who the members are, and what Wall Street’s analyst community has to say about which of these seven tech stocks you should buy today. Disclaimer: This article does not constitute individualized investment advice. These securities appear for your consideration and not as personalized investment recommendations. Act at your own discretion.

What Is the Magnificent Seven?

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The Magnificent Seven is a group of seven mega-cap technology and tech-esque stocks. I say “tech-esque” because while they’re all heavily involved in technology, some of them belong to other sectors. The seven stocks in question are: — Alphabet (GOOG, GOOGL): Communication services sector — Amazon (AMZN): Consumer discretionary sector — Apple (AAPL): Technology sector — Meta Platforms (META): Communication services sector — Microsoft (MSFT): Technology sector — Nvidia (NVDA): Technology sector — Tesla (TSLA): Consumer discretionary sector

Where Did the Name Come From?

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The name “Magnificent Seven” can be traced back to Bank of America analyst Michael Hartnett, who in 2023 started using the phrase to collectively refer to the seven stocks above. The term is taken from the 1960 John Sturges film of the same name, which itself was a Western adaptation of Akira Kurosawa’s Seven Samurai. And if you think Magnificent Seven sounds a little more recent, that’s because it is—Antoine Fuqua directed a remake of the film that was released in 2016.

Why Do We Keep Making Goofy Nicknames for These Stocks?

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OK. The names themselves are a little silly. But they exist for a reason: to collectively refer to a group of stocks with wildly outsized influence over the broader market. How outsized? Here’s John Lynch, Chief Investment Officer for Comerica Wealth Management, with the score (emphasis mine): “The ‘Magnificent Seven’ finished [2023] accounting for almost 30.0% of the S&P 500’s market capitalization while generating approximately two-thirds of the Index’s returns. This momentum has continued into 2024, resulting in record equity prices.” For reference: The smallest among these stocks accounts for nearly $600 billion in market capitalization. The rest, as I write this, sit in the trillions. But it’s not about size alone—otherwise Warren Buffett’s $850 billion Berkshire Hathaway (BRK.B) would have been invited to the club. No, whether it’s the FANGs, FAANGs, Magnificent Seven, and so on, the names have always referred to groups of massive stocks that are either developing or benefiting from explosive technologies. Today’s iteration is largely centered around artificial intelligence (AI), machine learning, and cloud computing, among other advances. Related: 13 Best Stock & Investment Newsletters for Inbox Alpha

The Pros’ Opinions on the Magnificent Seven

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Now, I’m going to give you a brief rundown of each Magnificent Seven stock, as well as a look at the current analyst community’s thoughts on their shares. I’ll also provide each stock’s consensus analyst rating, courtesy of S&P Global Market Intelligence. The consensus rating is the average of all known analyst ratings of the stock, boiled down to a numerical system where … Less than 1.5 = Strong Buy 1.5-2.5 = Buy 2.5-3.5 = Hold 3.5-4.5 = Sell More than 4.5 = Strong Sell In short, the lower the number, the better the overall consensus view on the stock. The equities here are listed in reverse order of their consensus analyst rating, starting with the worst-rated stock and ending with the best-rated stock.

7. Tesla

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— Market cap: $537.9 billion — Consensus analyst rating: 2.71 (Hold) Most people know Tesla (TSLA) as an automaker—which it is—but it’s also much more. Tesla manufactures primarily consumer electric vehicles, sells solar panels and solar roofs, and produces Powerwall integrated battery systems. Of course, the automotive business is where Tesla generates roughly 85% of its revenues, so that’s naturally the main point of focus for measuring up TSLA shares. Tesla currently offers six vehicles—the consumer-facing Model S, Model X, Model 3, Model Y, and recently released Cybertruck, as well as the business-focused Tesla Semi, which began production in 2022. Related: 7 Monthly Dividend Stocks for Frequent, Regular Income Tesla currently is the black sheep of the Magnificent Seven—it’s the only stock in the bloc that analysts (on average) don’t think you should buy. Analysts surveyed by S&P Global Market Intelligence currently have nine Strong Buys and six Buys on the stock, but 23 Holds, as well as three Sells and four Strong Sells. Part of the issue is valuation, which has virtually always been a concern with TSLA shares. Despite losing nearly 30% year-to-date, shares trade at 57 times earnings estimates for the coming year. That’s nearly thrice as expensive as the S&P 500, at a roughly 20 forward P/E, and more than double the technology sector’s 28 forward P/E. (Yes, Tesla is a consumer discretionary stock, but again, it’s generally treated like a tech stock.) Even analysts that like TSLA bristle at its price. Wedbush, which has an Outperform rating on the stock (that’s the equivalent of Buy), recently took shares off its Best Ideas List “due to our investment price discipline.” The other main concern, at least at the moment, is growth, as a fourth-quarter miss drained some confidence from the pros. “TSLA remains between two waves of growth, making it difficult to own for now,” says Truist analyst William Stein, who rates the stock at Hold. “TSLA’s Q4 result was modestly below consensus, and not surprising. While growth remains eye-popping for a large auto company, updates were mostly negative.” Among his worries are “notably lower” volume growth expectations for 2024 and slower cost reductions. Related: The Best REITs to Invest In for 2024 Longer-term, analysts point to the potential upside of Tesla’s AI initiatives, which include both full self-driving (FSD) technology and its Tesla Dojo supercomputer. But there’s not much near-term potential on that front. Morgan Stanley analyst Adam Jonas (Overweight, equivalent of Buy) recently wrote that there were “no real ‘AI rabbits’ pulled out of Tesla’s hat [in the fourth-quarter earnings conference call]” and that Musk described Dojo as a “high-risk/high-reward ‘long shot.'” And lastly, TSLA analysts always have to factor in the wild card that is Tesla’s CEO. We won’t beat a dead horse—Musk is, charitably speaking, mercurial, which can make some investors nervous. Just in the past month alone, the Wall Street Journal reported that Musk’s use of drugs is a concern to both executives and board members, and Musk has also began trying to move his legal base from Delaware to Texas after a court in the former state struck down an “unfathomable” $56 billion pay package, saying it was unfair to shareholders. Related: Best Fidelity Retirement Funds for a 401(k) Plan

6. Apple

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— Market cap: $2.7 trillion — Consensus analyst rating: 2.11 (Buy) Apple (AAPL) is one of the world’s largest companies, it features the most recognizable brand of any company on this list, and it’s the name behind many of the most popular consumer technology products around the globe. Apple’s workhorse is the iPhone, which has sold more than 2.3 billion units since its debut in 2007 and currently leads the global smartphone market, recently overtaking rival Samsung. Apple also offers a wide variety of hardware, including iPad tablets, Mac personal computers and laptops, the Apple Watch, AirPods and Beats headphones, Apple TV, and more. Related: The 24 Best ETFs to Buy for a Prosperous 2024 Over time, though, Apple decided to move beyond volatile hardware sales and into the more predictable recurring revenues that services provide. So in addition to paying up for your iProducts, Apple’s happy to collect your subscription money for Apple Music, Apple Arcade, Apple Fitness+, Apple News+, and Apple TV+. The analyst community is more favorable than not on Apple, but it’s hardly glowing. AAPL shares have 19 Strong Buys and seven Buys, versus 15 Holds, three Sells, and one Strong Sell, putting its consensus analyst rating on the more conservative side of the Buy spectrum. The pros’ enthusiasm has been muted in part by four consecutive quarters’ worth of year-over-year revenue declines—a streak Apple broke with its recent fiscal first-quarter earnings report, though the announcement still managed to be a mixed one. Related: 12 Best Long-Term Stocks to Buy and Hold Forever “Apple reported better-than-expected F1Q revenue/EPS,” says Oppenheimer analyst Martin Yang (Outperform). “However, F2Q24 outlook did not carry the momentum over. Management expects a 5% decline year-over-year, or no growth year-over-year excluding ~$5B positive impact on the year-ago quarter. Great China’s revenue decline of 13% is worse than expected and will likely drive more concerns into the rest of 2024.” Most bullishness among the pros is ascribed to improvement in services revenues as the number of iPhone users grows, as well as the incorporation of next-gen technologies. Related: The 7 Best Value Stocks to Buy for 2024 “With now 2.2 billion active devices up from 2 billion a year ago, it’s clear the overall installed base is accelerating, and this sets up [well] for the next 12 to 18 months, with Apple set to introduce generative AI to its installed base, Vision Pro hitting shelves today, a pent up upgrade installed base, and an AI-driven iPhone 16/17 in the crystal ball.” Wedbush’s Daniel Ives, who rates the stock at Outperform, wrote on Feb. 2.

5. Alphabet

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— Market cap: $2.0 trillion — Consensus analyst rating: 1.67 (Buy) Alphabet (GOOGL), the parent company of the better-known Google, boasts the world’s leading search engine. Er, sorry. It boasts the two leading search engines: Google Search and YouTube. Related: The 7 Best Growth Stocks to Buy for 2024 Whenever you have a question and type it into a browser or phone or ask it out loud to a smart speaker, odds are Google provides you with the answer. That level of dominance makes Alphabet difficult to compete with, and the ad systems attached to these platforms have built a financial foundation that allows the company to invest heavily in its future. And the future, for Google, is AI. Indeed, according to the MIT Technology Review, “Google is throwing generative AI at everything.” Google is trying to pump AI into established products like Search, YouTube, Gmail, Sheets, Maps, and Flights, while also building out new products such as its Google Bard chatbot, which within a year of its creation was renamed Gemini. Joseph Bonner (Buy), a stock analyst with research firm Argus Research, says “Alphabet has been doing extensive work on AI for years, including through its DeepMind subsidiary, which it has now integrated into its Google division. Google is looking to apply its deep research into AI across its platforms and applications, including search and advertising.” “We believe GOOGL remains at the forefront of the AI race, which should help drive sustainable (double-digit) growth in both the top and bottom lines, and support a compelling case for the stock,” says adds Truist analyst Youssef Squali (Buy). “One of the key differentiators between Gemini AI and GPT-4 in our view is that Gemini AI has access to proprietary training data from Google Search, YouTube, Google Books, and Google Scholar, which we believe could create an edge over GPT-4.” Related: WealthUp’s Winningest Tech Stocks for 2024 Unlike with Tesla and Apple, the pros are solidly bullish on the remaining Magnificent Seven stocks, including GOOGL. At the moment, analysts surveyed by S&P Global Market Intelligence have 31 Strong Buys and 15 Buys on GOOGL shares, versus 12 Holds and no Sell calls of any kind. WealthUp Tip: Alphabet actually has two sets of publicly traded stock: GOOGL, the company’s “Class A” stock that grants shareholders the right to vote on company matters, and GOOG, its “Class C” stock that has no voting rights.

4. Meta Platforms

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— Market cap: $1.3 trillion — Consensus analyst rating: 1.56 (Buy) Meta Platforms (META), once just Facebook, is a social media conglomerate at this point, boasting Facebook (3.1 billion monthly active users), WhatsApp (2 billion MAUs), Instagram (2 billion MAUs), Messenger (931 million MAUs) and its nascent Threads already has more than 130 million MAUs. Related: Best Vanguard Retirement Funds for a 401(k) Plan And, of course, Meta is so named because of its continued expansion into the “metaverse,” via its Quest AR/VR headsets. META has been on a burner of late for any number of reasons—take your pick. On the technological side, Meta Platforms is getting even better at monetizing its billions of users and injecting its various tools with artificial intelligence. “Commentary across Reels, Advantage+, and Shopping were positive, and we expect the next wave of advertiser-focused AI tools to keep this momentum going,” Stifel analyst Mark Kelley (Buy) wrote after the company’s fourth-quarter earnings report. The company beat both revenue and profit expectations, the latter also helped by Meta’s focus on leaner operational costs (read: layoffs). Meta plowed some of that excess cash into shareholder rewards. For one, it boosted its share buyback authorization by $50 billion. But more notably, META became a dividend stock—it initiated its first quarterly dividend, which will be a 50-cent-per-share payout that will land on March 26, 2024. (To be clear, META’s yield is microscopic at less than 0.4% at current prices, but dividend growth and time could be kind to META shareholders.) Related: 7 Best Value Stocks for 2024 [Smart Picks to Buy] When the picture is this sunny, it’s important to at least understand any potential headwinds. Meta is still pouring money into its Reality Labs (Quest) division; the company actually raised its capital expenditures guidance for 2024 by $2 billion, to a range of $30 billion to $37 billion. This, at the same time a juggernaut has entered the arena: Apple, with its recently launched Vision Pro. Also, BMO Capital Markets analyst Brian Pitz (Market Perform, equivalent of Hold) notes that content creators increasingly seeking income from platforms could weigh on Meta, as could difficult financial comparisons during the second half of this year, “which management would not address.” That said, the pros are more than rosy about this Magnificent Seven stock. META currently lays claim to 40 Strong Buy calls and 11 Buys, versus just seven Holds and three Sells.

3. Nvidia

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— Market cap: $2.2 trillion — Consensus analyst rating: 1.38 (Strong Buy) Semiconductor stock Nvidia (NVDA) is unlike any other Magnificent 7 stock on this list in that, rather than providing or utilizing AI services, Nvidia is producing the actual hardware that empowers any AI usage. Nvidia is the world’s largest chipmaker. It largely built its name on high-performance computing and graphics chips, and still is especially revered by gamers. But its technologies have become increasingly enterprise- and industrial-focused, used to drive everything from cloud computing and design to AI, robotics, and self-driving vehicles. So instead of trying to decide which stock or two you think will offer the best AI services, you could “bet” on growth of the technology broadly by investing in the physical foundation AI is being built on. Related: Best Schwab Retirement Funds for a 401(k) Plan BofA Global Research analyst Vivek Arya (Buy) points to results from mega-cap stocks as reason to believe that AI demand is merely in its infancy, and that it’s already becoming essential to some firms’ operations. He notes that at Microsoft (MSFT), “AI services contributed 6 points of growth, implying it’s now a $4 billion annualized run rate business for the Azure AI platform,” and that at Meta Platforms, AI-based ad tools are driving “material revenue” and AI-based feed recommendations are driving higher engagement. Truist analyst William Stein (Buy), who has previously referred to NVDA as “the AI company” and “the default choice for AI solutions, recently beat back a popular bear case against shares: “The bear case we’ve heard investors express recently goes like this: ‘NVDA is beating consensus with a stick right now, but considering long lead times and likely double-ordering, 2024 is likely to be peak revenue … and if sales decline in 2025, you can’t own the stock here,'” he says. “We believe this view is over-simplified, but at the same time, fair. The bigger question is whether it’s accurate.” Related: 7 Best Growth Stocks to Buy [Find Your Edge] Stein says there’s an “increasingly clear case” suggesting NVDA’s revenue can grow through 2025, which is largely based on new and ramping products and services, including the expected release of its next-generation GPU (Blackwell), ramping in its Grace CPU and Grace-Hopper CPU-GPU Superchip, and the mid-product-cycle upgrade H200 that will begin shipping in the second quarter of this year. Wall Street as a whole is extremely bullish on this Magnificent Seven stock, doling out 40 Strong Buys and 11 Buys, versus a mere five Holds and no Sell calls.

2. Microsoft

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— Market cap: $3.1 trillion — Consensus analyst rating: 1.33 (Strong Buy) No. 1 in market cap, but No. 2 in analysts’ hearts, is Microsoft (MSFT), a tech giant that’s synonymous with workplace productivity. Its Windows and Office 365 software products are the gold standard for businesses around the world (even if Teams leaves a lot to be desired). Related: The 7 Best Vanguard Index Funds for Beginners Microsoft is more than just Word, of course. Its Azure division is currently the second-largest cloud service provider in the world (behind Amazon Web Services). It also owns the professional social media network LinkedIn. It’s a titan in gaming with its Xbox consoles, recently acquired gamemaker Activision Blizzard, and Minecraft gamemaker Mojang. It owns other businesses, too, including conversational AI company Nuance Communications and software development platform GitHub. Microsoft is hardly immune to macroeconomic issues, but it’s fair to say that MSFT is as defensive a technology company as you’ll find. Argus analyst Joseph Bonner (Buy) provides an apt overview: “Microsoft has about as diversified and strong a set of assets as any company in the technology industry—and may even be seen as a haven by investors in uncertain times,” he says. “The company is one of just a few with a complete, integrated product set aimed at enterprise efficiency, cloud transformation, collaboration, and business intelligence. It also has a large and loyal customer base, a large cash cushion, and a rock-solid balance sheet.” Related: The 7 Best Closed-End Funds (CEFs) Like many of the Magnificent Seven stocks, MSFT’s path to growth lies in AI. But it’s not just about its potential through integrations with consumer-facing tech like Bing search. It’s about how AI can also continue boosting enterprise products, including adding the Copilot AI assistant to Office and AI services to Azure. Indeed, the latter attributed 6 percentage points of growth to AI in its fiscal second-quarter earnings reported in January. “Results validate our thesis that Microsoft is at the nexus of a technological shift toward an AI-first IT stack,” say Goldman Sachs Equity Research analysts, who rate MSFT at Buy. “Because enterprises have yet to allocate discernible amounts of IT budgets toward [generative AI], we believe that once the macro backdrop improves, greater unlock could drive more tangible growth in CY25. Microsoft’s unique competitive advantage is also a large server base that it can convert into [more than] $100 billion of Azure revenue over time. Augmented by the strengthening gen-AI cycle, we gain confidence that Azure can grow to a $200 billion business by FY29.” Analyst sentiment around MSFT is about as strong as it gets. The stock currently commands 42 Strong Buys and 13 Buys, versus just three Holds and zero Sells. Related: 11 Best Stock Advisor Websites & Services to Seize Alpha

1. Amazon

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— Market cap: $1.9 trillion — Consensus analyst rating: 1.30 (Strong Buy) Amazon (AMZN) dominates the retail world. It is a one-stop shop for nearly anything you could want. And it has redefined customer expectations—they were a pioneer in two-day, one-day and even same-day shipping. Related: The 9 Best Dividend Stocks for Beginners And yet, it’s also so much more than that. Amazon is also the world’s biggest cloud provider through AWS, it’s an entertainment company through its Amazon Prime service, and it’s one of the biggest advertising companies, behind only giants Google and Facebook. AMZN makes for such an attractive stock because it’s supported by a diversified business with ample opportunities to enter new markets and disrupt well-seated industry incumbents. That said, the optimism about future growth is mostly centered around AWS, cloud, and the potential growth AI could deliver. “While AWS revenue came in ‘only’ in line with expectations, it did so at better margin and with commentary to suggest the accelerated pace of growth should carry into 2024,” says William Blair’s equity analysis team, which rates the stock at Outperform. “Cloud migrations are picking up again, some of which were postponed over the last couple years, which is layering in new workloads to AWS. And of course, AWS’s gen AI capabilities are seeing accelerating demand, creating another tailwind. Though the company did not specify a revenue figure this quarter from gen AI, it articulated its belief that gen AI will drive tens of billions of dollars in revenue over the next several years.” Related: The 7 Best Mutual Funds for Beginners While Amazon would understandably paint a positive picture of its own AI initiatives, Wall Street analysts largely seem to be taking the firm at its word. The consensus picture is nearly flawless, thanks to 44 Strong Buys and 14 Buys, versus a mere two Holds and no Sells of which to speak—making it the top-rated Magnificent Seven stock on this list. For now.

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