Introducing the 'Magnificent Seven' Stocks: Beyond the FAANGs

From FAANGs to the Magnificent Seven stocks: meet the new faces shaping market dominance.

By Harry Dyer

Created on: 16/05/2024

Updated: 29/08/2024

Reading time: 6 mins

You remember the FAANGs? Now Meet the Magnificent Seven Stocks

You may remember a group of powerhouse stocks called the FAANGs (Facebook, Amazon, Apple, Netflix, Google), which dominated the markets and the media.

After some changes, the FAANGs have now become the Magnificent Seven: Meta, Alphabet, Tesla, Apple, Nvidia, Amazon, and Microsoft. And unfortunately, no one has come up with an acronym to name this group yet, but I’m sure they’re still trying!

Who are the Magnificent Seven stocks?

There are some old faces you may recognise on this list, and some you may not even realise are on both – such as Google (which restructured and became Alphabet back in 2015). And in case you missed it, Facebook also changed its name to Meta back in 2021.

You may also notice the loss of one well-known name from the conversation, which have been replaced by the likes of Tesla, Microsoft and Nvidia.

Netflix took a huge beating at the end of 2021 and beginning of 2022. Its share price has dropped over 75% from its peak, with most of that drop happening very quickly.

This drastic downturn ultimately marked the end of the FAANGS and the start of the Magnificent Seven.

Why is everyone talking about the Magnificent Seven stocks – and why should you care?

There are two main reasons why the Magnificent Seven stocks are a bit of a hot topic right now.

Well firstly, they had a huge run up in 2023, making an average return of over 110%, And Nvidia was the standout with nearly 240%!¹

The second reason is their sheer size. The combined weight of the Magnificent Seven has even made investors slightly nervous as they now make up an outsized proportion US share index – like the S&P 500 (which in case you didn’t know, is a stock index that tracks the performance of 500 of the largest companies listed on stock exchanges in the US).

Between them, The Magnificent Seven are actually worth more than the stock markets of the UK, Japan, France, China and Canada combined.

And the reason this has so many investors worried is what could happen to the wider financial markets if some of these companies pull back.

These stocks together make up around 30% of the S&P’s total weighting despite only being 7 of 500 stocks withing the index² But many consider them to be overvalued, potentially masking underlying issues in the wider market – such as the battle with inflation, fears of recession, and just the fact that many of the other stocks in the S&P 500 are performing as well.

What does the future hold for the Magnificent Seven?

Let’s start with a quote from Jamie Dimon³, the CEO of JP Morgan – AKA America’s Largest Bank:

“While we do not know the full effect or the precise rate at which AI will change our business — or how it will affect society at large — we are completely convinced the consequences will be extraordinary and possibly as transformational as some of the major technological inventions of the past several hundred years: think the printing press, the steam engine, electricity, computing and the Internet, among others.”

The reason why I want to draw attention to it? Well, it perfectly encapsulates the potential that companies at the forefront of AI (Artificial Intelligence) could have.

Whilst there’s plenty of speculation around the future of the Magnificent Seven, it is clear that despite them all having fairly different business models, many have benefited hugely from the release of AI.

This has been a huge development, reminding many people of a similar decade-defining moment: the dot-com bubble of the early 2000s.

But unfortunately, like the dot-com bubble, many are worried the AI one could eventually burst too. This is because some investors argue that they simply cannot continue to grow at the pace they have been, and that their incredible recent performance is impossible to sustain.

There is also regulatory risk to consider; basically, the idea that governments may look to curb their progress and even break up these companies to encourage healthier competition.

However, some are still very bullish on their future prospects, and may consider them too big to fail at this point.

And where this situation differs to the one we saw in 1997 (before the dot-com crash) is that the Magnificent Seven are real companies with real earnings. So, although their valuations are high, they can be justified ⁴:

Each are dominant in their own industries and create products that are in high demand.
Some of them compete against each other, and this level of competition would only increase their drive for growth.
They also feed off each other to a certain extent; Nvidia’s four largest customers happen to be Microsoft, Meta, Amazon, and Alphabet, and Alphabet is closely linked with Apple, paying them a good deal to be the default search engine on the iPhone.⁵

Another reason many are positive on the future of the Magnificent Seven is due to their massive Research and Development (R&D) budgets. These companies have some of the greatest minds in the world working to produce the next big technological breakthrough. And most importantly, they also have the funds to help them do it.

And their investment in this area has been growing steadily since 2012. Back then, their share of the total R&D spending by US public companies was 12%, just by 2022, it had grown to 38%.[6]

This ability to outspend any competition (and further cement their leading market position) is a strong case against any idea that these companies can be stopped.

Now, let’s go back to that quote from Jamie Dimon. Let’s say you had the chance to invest in companies at the forefront of making some of the biggest technological inventions in history (like the printing press or steam engine). You would do it, wouldn’t you?

How does this affect our customers?

So, after all this you’re probably keen to know how this impacts you as a Wealthify customer.

And the truth is, you are already investing in these companies!

As previously mentioned, these stocks make up a huge part of the market, so those of you with an Original Plan (for example), would have already benefited as these stocks would be included in our US funds.

And for those of you with an Ethical Plan, the ‘active’ nature of these funds allows the managers to take larger positions in the stocks they have a high conviction in – like the Magnificent Seven. So, you may have done even better out of this situation.

This has particularly benefited our Brown Advisory US Sustainable fund who's top 3 allocations are Nvidia, Microsoft and Amazon.

And in terms of how the future of these stocks will affect you going forward, we feel there is no need for concern.

All Wealthify portfolios are well diversified across different markets (including more defensive assets, such as bonds). This means that you’re not just relying on a few investments to do well at any one time.

But the future of these stocks is still very much unknown – and when it comes down to it, very few investors would have predicted the success that the Magnificent Seven has had recently.

Whilst this may seem to make their future even more uncertain, there is one thing we are sure of: these companies have shown an innate ability to grow and capitalise on opportunities, and we expect them to continue to do so in the future.

Please remember the value of your investments can go down as well as up, and you could get back less than invested. Past performance is not a reliable indicator of future results.

Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.

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