Markets
The Magnificent 7: Why Indian investors are eyeing these US giants
Summary
Is investing in the Magnificent 7 the right move now, or should investors be cautious? Here are insights on these mega-stocks and Indian investment options.
The seven stocks that go by the title the 'Magnificent 7' have been fuelling much of the market rally seen since the beginning of 2023. Tesla has been a laggard among the seven but it appears it could play a catchup, with the stock gaining about 23% in three sessions following its earnings report.
But what do these mega-cap stocks really mean for the market, and should investors consider jumping on the bandwagon?
Here’s a deeper dive into the impact of these market movers and what their performance could signal for potential investments.
The Mag 7s
The phrase ‘Magnificent 7’ had its origin in 2023 when BofA Securities analyst Michael Hartnett first used it to refer to seven of the mega-cap tech stocks that primarily drove the 2023 market rally.
John Sturges’ 1960 movie The Magnificent Seven in which a group of seven gunfighters are hired to protect a small village in Mexico from a group of marauding bandits apparently was the inspiration behind the name.
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The seven stocks that make up the grouping are (listed in descending order of market capitalisation):
Apple, Inc.
Nvidia Corp.
Microsoft Corp.
Alphabet, Inc.
Amazon, Inc.
Meta Platforms, Inc.
Tesla, Inc.
Oversized Impact
The Magnificent 7 stocks collectively accounted for $16.35 trillion (34.15%) of the S&P 500’s total market capitalisation of $47.88 trillion as of 1 November. Their unwieldy influence is even more stark if we look at their contribution to S&P 500’s gains since 2023.
The S&P 500 Index, a broader gauge of US market performance, has surged higher by roughly 52% since 2023. This pales before the 145.82% aggregate return of the Magnificent 7 stocks. If these seven stocks are excluded, the rest of the S&P 500 stocks as a grouping may have seen negative growth for the period.
The turning point came after the October 22, 2022 bear market low, with momentum taking off in early 2023, fueled by the artificial intelligence (AI) boom. The surge in AI interest, largely triggered by the launch of OpenAI’s ChatGPT, marked a new phase for the market.
Microsoft, an early investor in OpenAI, reinforced its partnership with a multi-billion dollar, multi-year investment in January 2023 to integrate OpenAI’s models across its platforms, further accelerating the tech rally.
Here’s how these stocks have fared since 2023:
Change Since 2023 Apple +73.17% Nvidia +827.40% Microsoft +73.58% Alphabet +94.63% Amazon +135.63% Meta +372.71% Tesla +102.13% S&P 500 +49.21% Nasdaq Composite +74.27% BSE Sensex +31.04%
The Roundhill Magnificent Seven ETF, an exchange-traded fund that offers equal-weighted exposure to the Magnificent 7 stocks, hit an all-time high (intraday) of $49.96 on 10 July. The ETF saw a pullback in early August as global markets faced a sell-off driven by the unwinding of the yen carry trade.
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The ETF has been on a broader uptrend since hitting a bottom in late-August. It has added 44% so far this year.
The valuation of these high-profile tech stocks are stretched, given the extended two-year rally. The bloated valuations may not be a deterrent to growth investors who are willing to pay a premium for pocketing outsized returns in the future.
But how much premium investors might be willing to pay is a function of their risk appetite, extraneous factors such as macroeconomics, geopolitics and forex, and industry- and company-specific developments.
Key catalysts
The most important catalyst is the upcoming US presidential election, and its outcome will have bearing on the regulatory policies that would govern big techs for the next four years. Former President Donald Trump, who is contesting on the Republican ticket, is widely viewed as industry-friendly, with his proposed tax cuts for corporations and less stringent regulations.
In contrast, President Joe Biden’s administration clashed with big tech, particularly on antitrust issues, with Federal Trade Commission Chair Lina Khan advocating for a breakup of Google parent Alphabet due to its search dominance.
JPMorgan Global Market Strategist Stephanie Aliaga said in a blog in September that she expects Democratic Party’s nominee Kamala Harris to continue Biden’s antitrust enforcement efforts in a bid to reduce monopolies. The vice president will likely extend continued support for traditional energy and banking regulation.
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The Federal Reserve’s policy pathway is also expected to have a say in how the Magnificent 7 trade. After a series of aggressive rate hikes that began in March 2022 and a few pause decisions, the US central bank led by Chair Jerome Powell for the first time cut rates in the current monetary policy cycle in September.
Futures markets anticipate further cuts—a 25-basis-point reduction on 7 November and another on 18 December—if inflation trends and the job market signal sustained stability.
If inflation’s trajectory and the job market give an all-clear signal for successive rate reductions, analysts and market strategists see the equity market rally broadening to include the underperforming small- and mid-caps.
Morgan Stanley said in its October monthly market monitor that it sees a shift from cyclicals to defensives.
That said, as long as the macroeconomic and geopolitical uncertainties persist, these big techs might have an edge. Even if macro and the geopolitical milieu turn conducive, there could still be takers for these stocks as long as the US economy avoids a hard-landing scenario.
Mixed bag of earnings
With all but one of the Magnificent 7 earnings reports now in, the September quarter proved a mixed bag for these tech giants.
While Tesla, Alphabet, and Amazon exceeded expectations, others delivered solid results that still fell short of investors' high hopes. A common thread across earnings was AI, which played a significant role in boosting revenues.
Apple is banking on AI-driven hardware to resonate with its extensive user base as it phases in Apple Intelligence through early 2025. However, growth in Greater China—a crucial market for Apple—remains sluggish, with a slight revenue decline in the region last quarter.
Nvidia prepares to join the Dow Jones Industrial Average on 8 November, replacing Intel, as AI investments continue to propel its growth. Yet, competition and US restrictions on high-performance chip sales to blacklisted countries pose challenges. Since Nvidia’s prospects hinge on the AI boom, concerns of an AI bubble weigh on the stock.
Microsoft also reaps benefits from the AI wave. Still, shares slipped following a forecasted slowdown in its Azure cloud business, with investors wary of AI-related costs impacting profit margins.
Alphabet relies heavily on ad revenue, which accounted for 75% of its September-quarter income. As economic conditions impact ad spend, Google Cloud remains essential to Alphabet's growth strategy.
Amazon saw a strong rally after its latest results, driven by robust performances in e-commerce and Amazon Web Services (AWS). Analyst Scott Devit of Wedbush expects advertising growth to sustain in the high teens through 2025, boosted by Prime Video ad initiatives and improving margins.
Meta’s AI investments have sparked investor concern over near-term margin pressure, but these investments promise mid- to long-term returns. Morgan Stanley analyst Brian Nowak noted Meta's pipeline improvements as reasons for continued investment tolerance.
Tesla beat top- and bottom-line expectations in the September quarter, with improved auto margins. However, the EV market faces ongoing challenges with strong competition and subdued demand, pushing Tesla’s major growth opportunities further out.
How Indian investors can gain exposure?
Indian investors can also have a piece of the Magnificent 7 pie as we now have the option of opening an overseas trading account. One can also indirectly invest in these companies by buying units of Mutual Funds or ETFs, which have these companies in their portfolio.
Under the Liberalised Remittance Scheme, the Reserve Bank of India stipulates that an Indian resident can invest up to $250,000 (about ₹2 crore) per person per year in overseas markets, including stocks, bonds, mutual funds and real estate.
Investing in individual stocks and very specialised ETFs, however, should be done only with a lot of thought and planning. While the Mag 7 have performed well, and many expect them to do well in the future too, the fact is they have been very volatile from time to time.
With tech evolving at lightning speed, a single misstep from any of these giants could lead to significant losses. Yet, even amid uncertainties, the odds still lean heavily in their favour, keeping them positioned for growth.
We have relied on data from Yahoo Finance throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only. 
Shanthi has over two decades of reporting on US markets and stocks, with particular focus on techs, EVs and biopharma companies. Her stories have appeared on Yahoo Finance, MSN and have been cited in books and US newspapers as well.
The writer and her dependents do not hold the stocks/ETFs discussed in this article.
