‘Magnificent Seven Shares’: Why stocks like Nvidia, Tesla, Meta, Microsoft jumped this year?
The Magnificent 7 comprises Nvidia, Tesla, Meta (Facebook), Apple, Amazon, Microsoft and Google shares and all these companies have clocked double digit returns since the beginning of 2023, primarily taking support from their exposure to the AI sector, an easing interest rate regime and robust earnings.
In this blog, we explore how rapid developments in AI are helping stocks having direct or indirect exposure towards AI developments.
The recent upswing in AI related shares began when Nvidia released their earnings report for the first quarter of fiscal year 2024.
On face value, Nvidia’s revenue and net profit slipped for the quarter ending March 2023, but it was its strong earnings outlook that not only pushed its share price higher but also pushed share prices of most AI focussed shares like Broadcom, Taiwan Semiconductor, Texas Instruments and Marvell Technologies.
Magnificent 7 shares: The new FAANG?
The acronym FAANG which stood for Facebook, Amazon, Apple, Netflix and Google was synonymous with high growth and robust balance sheet technology shares. These were the companies that were considered to be a ‘must have’ in most technology investor portfolios.
There seems to be a new acronym in town - The Magnificent 7, that comprises Nvidia, Tesla, Meta (Facebook), Apple, Amazon, Microsoft and Google shares.
Tesla, Nvidia and Microsoft are the new entrants (Since they weren't a part of FAANG) in this field of high growth companies - most of it is due to their heavy exposure to the ever developing AI sector.
Michael Hartnett, investment strategist at Bank of America, for example, referred to the "Magnificent Seven" as the big seven "monopolistic U.S. tech stocks" in a research note in May.
Magnificent Seven stocks: How have they performed this year?
Magnificent Seven shares: Calming interest rates to help shares?
The US central bank in its June 2023 meeting left interest rates unchanged, the first time since 2022 when global central banks went on a rate hike frenzy to curb runaway inflation.
This had hurt technology shares somewhat as their value is derived by the capability to generate future revenue growth, which is dampened when interest rates rise. However, with hopes of calmer interest rates on the rise, tech shares have again begun to gain positive traction in the market.
This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.