Key points to remember
- After generating gains for the S&P 500 in 2023, five of the Magnificent 7, a group of stocks including Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia and Tesla, have outperformed the S&P 500 so far in 2024.
- Growth fears are weighing on Tesla shares. While Apple surged on artificial intelligence (AI) announcements in June, its first-half gains lagged those of Nvidia and other Magnificent 7 stocks.
- Some experts say it could become harder for companies to meet investors’ lofty expectations. Others think the rebound in big tech companies could spread to the broader market.
While enthusiasm for artificial intelligence (AI) has helped many Magnificent 7 stocks outperform the market in 2024 so far, a few have struggled to keep pace.
Looking ahead to the second half of the year, experts warn that investors’ lofty expectations for the group — comprised of Microsoft (MSFT), Amazon (AMZN), Meta (META), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA) and Tesla (TSLA) — could become harder to meet, raising questions about how long Big Tech’s AI-fueled momentum will last.
Most of the 7 largest companies have outperformed the S&P 500 in 2024, but Apple and Tesla lag
After Magnificent 7 shares powered the S&P 500’s gains in 2023, the divergence in the group’s stock performance has widened in 2024. Nvidia has more than doubled since the start of the year, while Tesla has lost nearly 1%.
Shares of Meta gained 44% and Alphabet gained 33%. Amazon and Microsoft rose 30% and 22%, respectively, driven by AI-related growth. Those stocks, along with Nvidia, outperformed the S&P 500, which gained 16%. Apple slightly underperformed the index, gaining 15% after the iPhone maker’s stock rallied in the second quarter on AI-related announcements.
Tesla is the only Magnificent 7 stock to have declined since the start of 2024, prompting calls for a review of the electric vehicle maker’s membership in the group. However, July began with its stock rallying, nearly erasing year-to-date losses on better-than-expected second-quarter deliveries. Some analysts have suggested the new numbers could mark a “turning point” for Tesla.
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High expectations could make it harder for Magnificent 7 shares to impress investors
Going forward, the question is “who can deliver” on investors’ high expectations for the Magnificent 7, Steve Sosnick, chief strategist at Interactive Brokers, told Investopedia.
Sosnick expressed concerns about how these companies will meet investor expectations for AI, particularly with long development timelines that mean returns on AI spending by big tech companies could take years.
Goldman Sachs analysts expect Nvidia, Meta, Alphabet, Amazon, Microsoft and Apple to grow 30% in the second quarter from a year earlier, compared with 9% for the S&P 500 and 5% for the rest of the market. Disappointments, the analysts said, “will likely be severely punished.”
The 7 Magnificent Movements Will Impact the Broader Market
The stock market’s performance will likely have a significant impact on the broader market in the coming months. In the first half of the year, Nvidia, Meta, Alphabet, Amazon and Microsoft accounted for 62% of the S&P 500’s return.
The market is driven by “a fairly narrow list of stocks,” which makes it “very top-heavy,” Sosnick said. “For better or worse, we’re going to live or die with them.”
Solita Marcelli, UBS’s chief investment officer, said UBS “expects[s] The rally will broaden and investors should not overlook opportunities beyond recent US tech leaders.
