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Less than a year after its creation, the “Magnificent Seven” moniker is no longer in favor among stock market enthusiasts, as the problems grow by the day and so does the gap in returns between this much-vaunted group of megacap stocks.
One might wonder if the magic has worn off for a motley crew of companies like Nvidia (NVDA), Meta Platforms (META), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Tesla (TSLA) and Apple (AAPL).
Nvidia is up 85% this year alone and appears to be forming an asset class of its own: The company has set 29 new all-time highs this year, defied the bears almost daily, and its market cap has soared by more than $1 trillion this year alone.
The Magnificent 7: Market Cap Change in 2024 — As of March 12, 2024
Meta Platforms hasn’t received as much press as leading AI companies, but its market cap has increased by nearly $400 billion this year, a 175% gain over last year.
Amazon and Microsoft will add roughly $250 billion to the market capitalization of the S&P 500 and Nasdaq 100 respectively this year.
The three who were late showed up.
Tesla’s stock price peaked in November 2021 but has since plummeted 75% in the 24 months since.
One might wonder why Tesla, with its seemingly disastrous decline, was included in the original “Magnificent Seven,” but the 2022 bear market has wiped out all of the top market cap companies of the past few years. It’s easy to forget that Meta’s market cap has also fallen by three-quarters.
By mid-2023, Tesla’s stock price had doubled and it was once again ranked among the top 10 companies in the world.
While Apple isn’t subject to the same volatility as Tesla, its sheer size means that a drop in its stock price, even a small one, still translates into a significant loss in value: Apple is down just 10% this year, but that means its market cap has fallen by $385 billion.
And then there’s Alphabet Inc. Its shares have not risen at all this year and sentiment is bearish. Despite being a key innovator and leader in artificial intelligence, the company has faced several high-profile missteps surrounding its Gemini rollout and lost roughly $100 billion in a single day in February.
Alphabet recently surpassed its all-time high in 2021 but has since fallen back. If you look closely at the chart over the years, you can see a nice cup formation, perhaps with a handle approaching. But for now, it’s just a false breakout and a nominal new high.
If you exclude the three obvious laggards — Tesla, Apple, and Alphabet — the Magnificent Seven’s returns will improve over the long term.
The story continues
And in a purely intellectual exercise, Yahoo Finance’s head of news, Miles Udland, reshuffled the Magnificent deck: He kept Mag’s four best stocks, removed its three worst stocks, and added two “diversified” stocks to the list: Costco (COST) and Eli Lilly (LLY).
Eli Lilly recently gained fame (and fortune) with its weight-loss drug Zepbound. Its market cap was about $350 billion at the start of 2023, but has since skyrocketed to over $700 billion, placing it firmly in mega-cap territory. Its 30% price-to-earnings ratio this year also makes it an attractive new entrant.
Costco is well known as a consumer-facing large-cap stock, but it has never been known for artificial intelligence, as it is a “boring” staple. That might make it a good counterweight to other stocks that rely heavily on technology. The company has a market cap of just over $300 billion and has returned just over 10% this year.
Overall, the rebalanced index is competing well with the original: According to Yahoo Finance calculations, an index that includes the Mag Four plus Costco and Eli has returned more than 135% since the start of 2023, beating the 90% return of the Mag Seven.
But neither has beaten MagFour’s 145% return over the same period. As of this week, MagFour and the newly constructed MagSix are each up about 25% this year, while MagSeven is up 9%.
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