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The era of the Magnificent 7 is over, says the analyst who invented the term

Aruni Soni   

The era of the Magnificent 7 is over, says the analyst who invented the term
  • It was a good run, but the era of the Magnificent Seven is over for the stock market.
  • The group's fortunes have diverged, with stocks like Nvidia soaring and Tesla tanking.

The Magnificent Seven are looking a little less magnificent, and aren't really even a band of seven anymore.

Their diverging fortunes this year might mark the end of an era for the stock market, according to the analyst who coined the nickname for the group of mega-cap giants.

In a note titled "R.I.P the Magnificent Seven Era," Mike O'Rourke, chief market strategist from Jones Trading, said the group's dominance over the stock market is coming to a close.

Back in April 2023, when O'Rourke invented the moniker (although some say it was BofA's Michael Hartnett who coined the term), the Magnificent Seven contributed to a stunning 88% of year-to-date gains. Today, that grip on the market has loosened.

In January, Michael Hartnett noted that the seven biggest stocks — Apple, Meta Platforms, Nvidia, Tesla, Amazon, and Microsoft — accounted for 45% of the S&P 500's gains. That's still a lot, but it's markedly less than the hold it once had.

Now, with the market rally broadening out, and with stocks within the Magnificent Seven embarking on different trajectories (think Nvidia versus Tesla), it's becoming easier for investors to differentiate between members of the group.

"This big rising tide of seven names lift[ing] all boats in the stock market, is what I see ending," O'Rourke said. "I don't see these seven names rising together."

Diverging fortunes

For one, the Magnificent Seven aren't moving in the same direction anymore.

Take Nvidia, for example. The company has taken off on the AI rocket, its stock flying into the stratosphere, up 66% so far this year. The chipmaker posted a blowout earnings report this week, which swung the share price up 16% in a day, good for the biggest market-cap surge ever.

That spike came just weeks after Meta posted a similar record after its own earnings report boosted the stock 20% in a day.

Those moves are in stark contrast to Tesla's fortunes this year. The stock is down 22% since January amid a cloudier outlook for electric vehicle demand.

Even Apple has struggled since the beginning of 2024, down about 1.45%.

"They're still highly influential in the market," O'Rourke noted. "The difference now is they'll start canceling one another out as far as performance as opposed to all moving in the same direction."

AI splits the pack

One reason why the group has scattered is what everyone is talking about nowadays: AI.

Companies like Nvidia and Meta are firmly part of the AI trade as far as investors are concerned.

The chip maker has positioned itself as the only game in town when it comes to the tech that powers large language models like OpenAI's ChatGPT. In its latest earnings report, Nvidia said its data center sales soared to $18 billion, up 409% since last year.

Meta, too, said it's made a lot of progress on its "vision for advancing AI and the metaverse" in fourth-quarter results.

And while a firm like Tesla would like to think of itself as an AI juggernaut, the market still sees it for its core business, which is making cars.

There are also other reasons why the group's fortunes have diverged. Apple and Tesla are both a lot more exposed to China which is facing several economic headaches.

"Among these four names, the value and growth divergence is too vast and the primary factor they have in common is their mega cap status and remarkable past performance," O'Rourke said.

The Magnificent Seven label probably won't be retired, but a rebranding might be likely as the group continues to see diverging performances.

Dan Niles from the Satori Fund said the group should be trimmed to just Nvidia, Meta, Amazon, and Microsoft, or or the Fantastic Four.

"Earnings are struggling, they're having issues with competition, and I think you're seeing that in the stock prices -- Apple, Tesla are down this year and Google is underperforming the market," Niles said in a CNBC interview. "And then the Fantastic Four are doing absolutely great."

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