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The Magnificent 7 stocks are a group of mega-cap stocks that drive the market’s performance due to their heavy weighting in major stock indexes such as the Standard & Poor’s 500 and the Nasdaq 100. The group’s seven stocks earned their name in 2023 due to their strong performance and ability to power indexes higher seemingly without help from smaller stocks.
The Magnificent 7 includes the following stocks:
- Apple (AAPL)
- Microsoft (MSFT)
- Alphabet (GOOG and GOOGL)
- Amazon (AMZN)
- NVIDIA (NVDA)
- Tesla (TSLA)
- Meta Platforms (META)
The Magnificent 7 overlaps significantly with so-called FAANG stocks, with the former group all titans of tech and one of the highest-growth sectors of the economy. The advent and promise of artificial intelligence (AI) helped this group of stocks remain strong throughout 2023 amid high interest rates that pulled down many small- and mid-cap stocks. So the Magnificent 7 stocks became something of a rebellious group of equities that refused to decline with the rest.
While analysts think AI has the potential to drive significant profits for many of these companies, some suspect the valuations on these high-tech stocks have gotten ahead of the reality of AI. AI is a game-changer, but the Magnificent 7 may be pricing in much of that value already.
Why are the Magnificent 7 so popular?
The Magnificent 7 are popular for a few major reasons, due to their operational performance, stock performance and the future prospects of AI:
- Operational performance: The mega-cap tech stocks have among the world’s strongest business models, with products used by billions of people in some cases. They have established businesses, deep financial resources and can continue to grow.
- Stock performance: These stocks’ performance earned them their Magnificent 7 moniker, as they pushed higher in 2023, due in part to their association with AI. While the stocks of smaller companies fell, these big names seemed to keep rising.
- AI prospects: These companies stand to be huge beneficiaries of AI technology, whether they’re providing services based on the tech or the chips that power it.
Magnificent 7 stocks dominate major indexes
The Magnificent 7 comprise a huge portion of major indexes such as the and the Nasdaq 100, meaning their performance has an outsized impact on these market-cap-weighted indexes. Here’s how much of the S&P 500 they comprise, according to Slickcharts (as of May 6, 2024):
- Apple – 6.18 percent
- Microsoft – 7.02 percent
- Alphabet – 4.23 percent
- Amazon – 3.95 percent
- NVIDIA – 5.09 percent
- Tesla – 1.17 percent
- Meta Platforms – 2.31 percent
Add up those components and these seven stocks deliver 29 percent of the S&P 500’s performance. Meanwhile, the S&P 500’s other 490-some stocks deliver the remaining 71 percent. As great as this weighting is, it’s even more lopsided in the Nasdaq 100:
- Apple – 8.09 percent
- Microsoft – 8.63 percent
- Alphabet – 5.56 percent
- Amazon – 5.53 percent
- NVIDIA – 6.34 percent
- Tesla – 2.50 percent
- Meta Platforms – 4.52 percent
Total those all up and the Magnificent 7 stocks represent about 41 percent of the Nasdaq 100’s performance. In fact, this weighting is down significantly – from above 50 percent – because the Nasdaq index instituted a special rebalancing in mid-2023. The rebalancing was intended to reduce the massively outsized impact a handful of stocks have on the index.
Each time you purchase mutual funds or exchange-traded funds based on these indexes, you’re buying a similarly sized stake, albeit indirectly, in these Magnificent 7 stocks. Even if you’re buying funds based on other indexes, these seven names often dominate those funds, too. For example, the best index funds have significant weightings in the Magnificent 7.
Bottom line
The Magnificent 7 stocks have been a huge driver of the performance of major stock indexes and will likely continue to be for a long while. If you’re thinking about buying index funds, you want to understand how much impact these heavy hitters have on an index’s performance.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
