RIP, Magnificent 7
Nearly everything that made the Magnificent 7 magnificent has disappeared.
I have lived through FANG, BAT, GRANOLAS, FAAMG, and enough others to know that the age of the Magnificent 7 is over.
Whatever we’re going through in markets — whether it’s a repair from healthy correction or a dead-cat bounce before the start of something worse — I’m fairly confident that coming out the other side of this, we won’t be talking about Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla as some kind of collective.
Nvidia’s blockbuster earnings report in May 2023 didn’t just mark the unofficial kickoff for the AI stock market boom. Judging by references in news articles, this was also the time “Magnificent 7” began to live rent-free in investors’ heads.
Now, nearly everything that made the Magnificent 7 “magnificent” is fading. There were three components that underpinned the decision to group these stocks together:
They’re all megacap tech-adjacent stocks.
They were (mostly) growing earnings far faster than the S&P 500, and this was expected to continue.
They consistently outperformed the benchmark US stock index.
Well, No. 1 is still true, so there’s that.
But on the bottom line, there’s not across-the-board magnificence to speak of. For Tesla, there never was. Perhaps, to hearken back to the movie that bears the same name as this group of stocks, it’s the Josh Faraday of the bunch.
The premium earnings per share growth from most of these companies relative to the S&P 500 in 2024 is leading to some convergence in 2025, at best, and outright below-market earnings growth for others.
And the price performance that used to speak for itself now speaks volumes — in the other direction. On average, this is both the deepest decline for the cohort since it became popular as well as its largest underperformance versus the S&P 500.
Now only one member of the cohort — Meta — is outperforming the S&P 500 over the past three months, tying the lowest number since the end of May 2023.
The good news: there’s an infinite number of options to replace “Magnificent 7” in the market lexicon going forward.
Colleagues more creative than myself (like David Crowther, among many others) can now get to work dreaming up the next acronym that defines stock market dominance.
