Hello, Reader.
“The Magnificent Seven” are not superheroes, though that’s what the name sounds like. (And maybe how some investors view them.)
They are a group of the most influential companies in the U.S. stock market, particularly high performing stocks in the tech sector. And in the past couple years, they’ve set their sights on artificial intelligence.
At the start of the year, in the January issue of Fry’s Investment Report (members can log in here), I predicted how the Mag 7 would perform throughout 2024…
I expect this downtrend [of 2023 performance] to continue as the richly valued Mag 7 stocks lose some of their luster. To be clear, I don’t expect these stocks to perform poorly this year, just less well than the overall market.
The Mag 7 stocks led the first phase of what will likely be a multiyear AI-focused rally. But now that Phase II of this rally is underway, I expect the Mag 7 stocks to hand off the baton to a variety of smaller, dynamic AI plays.
Now that we’ve reached the final quarter of the year, I can report that my early-year prediction was mostly correct… but not entirely so.
Stock-market darling, Nvidia Corp. (NVDA) has rocketed 174% so far this year, which easily trounces the 21.6% return the S&P 500 Index has delivered year-to-date. However, the other six Mag 7 stocks have advanced only 18.9%, as a group.
In other words, the Mag 7, ex-Nvidia, have trailed the market. Admittedly, these stocks have not trailed the market by much, and they have continued to produce nice, double-digit returns. But as they ramp their spending on AI data centers and other capital-intensive projects, they will struggle to maintain their growth trajectories.
The upcoming election might also throw a wrench into the machinery.
So, let’s take a brief look at their recent earnings reports to see what they portend for the immediate future.
Let’s Talk Numbers
Tesla Inc. (TSLA) was the first Mag 7 stock to report its earnings on October 22.
Tesla surprised the market for the third quarter of 2024, reporting earnings of $0.72 per share (up from $0.53 last year) and nearly $25.2 billion in revenue. The company beat earnings expectations by 20% while slightly missing revenue projections, marking continued growth from the previous quarters.
However, I’ve turned bearish on the EV sector since the middle of this year. EV-related stocks have suffered from considerable sector-specific negatives, notably the sudden worldwide slowdown in EV sales growth.
Alphabet Inc. (GOOGL) reported its third-quarter earnings on Wednesday. The tech giant reported $2.12 earnings per share and $88.27 billion in revenue, representing significant growth of 37% and 15%, respectively. Alphabet surpassed expectations, with Google CEO Sundar Pichai highlighting the company’s cloud and AI success.
Meta Platforms Inc. (META) also announced third-quarter earnings on Wednesday. Even though the company reported the lowest year-over-year growth since the second quarter 2023, it still delivered $6.03 earnings per share and $40.59 billion in revenue. CEO Mark Zuckerberg emphasized significant AI investments, including substantial spending on Nvidia GPUs, while noting potential challenges with user numbers and anticipated infrastructure expenses for 2025. All of which led to a slight dip in after-hours trading.
Microsoft Inc. (MSFT) posted strong quarterly results on Wednesday with $65.59 billion in revenue and $3.30 earnings per share, representing a 16% year-over-year revenue increase.
However, the tech titan reported challenges with data center infrastructure deliveries, with outside suppliers running late and potentially impacting the ability to meet demand in the fiscal second quarter. Microsoft’s recent investment in the Three Mile Island nuclear power plant underscores its ongoing efforts to support a new phase of AI infrastructure.
Amazon.com Inc. (AMZN) reported its third-quarter earnings on Thursday, delivering $158.88 billion in revenue and $1.43 earnings per share. While Amazon Web Services (AWS) revenue fell slightly below market expectations, the division continues to show growth compared to the previous year. The company significantly ramped up its investments, with spending spiking 81% year-over-year from $12.48 billion to $22.62 billion, primarily focused on expanding data center capabilities and investing in Nvidia’s GPUs to back its ongoing AI infrastructure plans.
Also on Thursday, Apple Inc. (AAPL) announced quarterly earnings of $94.93 billion in revenue and $1.64 earnings per share. While beating Wall Street expectations there, the company’s net income took a hit from a one-time European tax decision.
iPhone sales surged 6%, with CEO Tim Cook stating that iPhone 15 sales were “stronger than 14 in the year-ago quarter, and 16 was stronger than 15.” With the new iOS 18 update, the iPhone 16 continues Apple’s AI efforts with “Apple Intelligence,” which includes Writing Tools among its suite of AI-powered features.
Prepare for the Months Ahead
Don’t get me wrong, the Magnificent Seven are magnificent for a reason. They’re world beaters, global leaders, and technology leaders.
But even magnificent companies can underperform, which is true in this case. So, it’s safe to say my early-year prediction was mostly true.
This underperformance is primarily due to high valuations, the wax wings of the stock market. And this is a trend I expect to continue for the Mag 7 in 2025. As the market continues to fan out into lower-valued companies, these giants are beginning to experience a dip in numbers, meaning a deep correction could very well be in the cards.
We are entering a new frontier in artificial intelligence, where the baton is being passed between companies, promising to reshape our day-to-day lives.
I don’t expect a dramatic downfall yet, but volatility is to be expected with any transition. And the upcoming presidential election cycle adds another layer of market uncertainty.
Both candidates, Donald Trump and Kamala Harris, aren’t fond of talking about AI. Though Trump continues to cozy up to Elon Musk, and Harris aligns more with Sam Altman’s belief in ethical innovations, what they’re not saying could be the most telling signal for investors…
That’s why my colleague Louis Navellier is urging investors to prepare for the market’s seismic shift in the days after the election. AI stocks have the potential to be at the epicenter of this transformation, with ripple effects across multiple sectors.
Louis believes November 6 – the day after the election – could trigger chaos in the markets, and change the game of investing for months, whipsawing the stocks most investors have in their portfolios.
Fortunately, Louis has a quantitative tool that’s made to help you through this uncertainty. And folks who take advantage of this system will have the chance to get ahead of unpredictable market moves during political, economic, and financial shocks, giving you the shot at rare short-term gains.
Louis introduced this tool at this “Day After Summit” earlier this week.
Regards,
Eric Fry
