In recent years, a significant portion of the stock market’s returns have been driven by just a handful of companies that have come to be known as the “Magnificent 7.” These seven companies are among the largest in the S&P 500 index and account for more than 30 percent of the index’s market value as of mid-2024.
Here’s what to know about the Magnificent 7 and how to invest in these tech giants.
The Magnificent 7 refers to seven tech stocks that have contributed a significant portion of the stock market’s returns in recent years and, in several cases, have grown to multi-trillion dollar valuations. Here are the companies that make up the so-called Magnificent 7.
*Note: Data as of early July 2024.
Apple makes several different consumer tech products including the iPhone and has a brand that is recognized around the world. The company generated $383 billion in sales during its fiscal 2023, and counts Warren Buffett’s Berkshire Hathaway as one of its largest investors.
Market cap: $3.6 trillion
Stock price: $232.01
5-year return (annualized): 35.9 percent
Microsoft is best known for its software offerings such as its different Microsoft Office products, but it also is involved in the video game business through its Xbox product and 2023 acquisition of Activision Blizzard. The company also appears well positioned to benefit from artificial intelligence through its stake in OpenAI. Microsoft earned almost $212 billion in revenue during its fiscal 2023.
Market cap: $3.5 trillion
Stock price: $464.30
5-year return (annualized): 28.2 percent
Nvidia has been the largest beneficiary thus far of the boom in artificial intelligence spending. The company’s advanced chips have seen enormous demand and its revenues grew to about $27 billion during its fiscal 2023. Nvidia has been one of the best performing stocks in recent years, generating enormous wealth for shareholders.
Market cap: $3.3 trillion
Stock price: $134.38
5-year return (annualized): 101.8 percent
Alphabet is the parent company of online search engine Google and earns most of its more than $307 billion in revenue from advertising. Alphabet also owns a cloud business, YouTube and a number of other business ventures it classifies as “other bets.”
Market cap: $2.4 trillion
Stock price: $192.83
5-year return (annualized): 27.7 percent
Amazon is well known as the largest online retailer in the world, but the company has also built a large cloud computing business in Amazon Web Services, or AWS. Amazon generated about $575 billion in revenue in 2023 and co-founder Jeff Bezos is the second-richest person in the world as of July 2024, according to Bloomberg.
Market cap: $2.1 trillion
Stock price: $199.49
5-year return (annualized): 14.9 percent
Meta Platforms is the parent company of Facebook, Instagram and WhatsApp and generated nearly $135 billion in revenue in 2023. The company is spending billions of dollars to boost its artificial intelligence capabilities and its stock has reached new highs in 2024.
Market cap: $1.4 trillion
Stock price: $535.89
5-year return (annualized): 21.7 percent
Tesla generated nearly $97 billion in revenue during 2023, the vast majority of which came from the sale of electric vehicles. Tesla currently sells five different consumer vehicle models. The company’s CEO, Elon Musk, is currently the richest person in the world as of July 2024, according to Bloomberg.
Market cap: $844.1 billion
Stock price: $264.69
5-year return (annualized): 76.5 percent
Investing in the Magnificent 7 stocks is fairly simple and you may already have significant exposure to them without realizing it. Here are the main ways to invest in these tech leaders.
Invest in the stocks directly. If you want to invest in any of the Magnificent 7 stocks you can easily do so through an online broker. You’ll just need to enter a trade order using the stock’s ticker symbol and the number of shares you’re interested in buying. Check out Bankrate’s list of the best online stock brokers.
Invest in index funds. If you’re an investor in index funds that track indexes such as the S&P 500 or the Nasdaq 100, you’re already a significant holder of the Magnificent 7 stocks. These stocks are some of the largest companies in the world and they accounted for more than 30 percent of the S&P 500 as of mid-2024 and more than 40 percent of the Nasdaq 100.
Invest in Magnificent 7 ETFs. There have also been a few funds launched that invest exclusively in the Magnificent 7 stocks. These funds are extremely concentrated and are not adequately diversified for most investors. You’ll also have to pay the fund’s expense ratio, so it probably makes more sense to buy these stocks yourself if that’s what you’re interested in.
The Magnificent 7 stocks have performed extremely well in recent years, generating outstanding returns for long-term shareholders. But good returns in the future are not guaranteed and there are risks to be aware of.
Valuations: Many of the Magnificent 7 stocks trade at premium valuations, which could weigh on their future performance. To be sure, these valuations may be supported by strong earnings growth and the companies’ competitive positions, but some of that has no doubt been priced into the stocks.
Size: One challenge these companies face is that it is difficult to compound at high rates when you’re already among the largest companies in the world. For Apple to double from current levels, it needs to add $3.5 trillion in additional market value. That’s no small task.
Competition: The nature of capitalism is that today’s market leaders face constant threats from those who want to take their place at the top. Competition can come from existing threats or from new ones altogether, but all of these businesses face challenges that could threaten their reign.
Concentration: If you’re investing in just seven stocks, you have a lot riding on just a few outcomes. Even index fund investors face risks from the rising concentration of the Magnificent 7 stocks in their portfolios. You may want to look for ways to diversify and reduce some of your exposure.
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.
