Last year, Bank of America analyst Michael Hartnett had the bright idea of rebranding the mega tech stocks as “The Magnificent Seven.” Why not? Great movie, memorable name. It seemed to fit, and it caught on.
Previously, these companies had been known as FAANG and then FAANG+. But some companies had fallen off the list (Netflix Inc.) while others changed names, so the old initials didn’t work (Facebook morphed into Meta Platforms Inc. while Google became Alphabet Corp.).
The new Magnificent Seven includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. As an acronym it would read AAAMMNT. Try pronouncing that!
Around the beginning of the year, a reader wrote to complain that all these stocks were too expensive. They may be great companies, he said, but all were trading at over US$100 a share, despite numerous stock splits, some at 20-1 (Amazon, Alphabet).
My reply was the same as it was in 2017 when I first recommended Amazon at over US$800 (presplit), with a P/E ratio of 171. “Yes, it’s expensive,” I wrote. “I happen to believe it will be even more pricey a year from now”. It was.
I received a similar comment about Nvidia a few weeks ago. My answer was essentially the same.
People with long memories remember the dot-com bubble of 2000-02. By the time it was over, in October 2002, the Nasdaq had fallen 78 per cent. It didn’t recover its losses until 2015.
Of course, we could see a correction after the recent tech run-up. But it won’t be a repeat of the dot-com crash. Today’s tech giants are huge companies with world-renowned brand names. All but one have market caps in the trillions. All but two have seen their share price rise this year, most by double-digits.
Here’s a quick rundown on the stocks, with year-to-date performance numbers (to May 5).
Alphabet (GOOGL-Q). Revenue rose 13.5 per cent in the first quarter, to US$80.5-billion. That compared with US$69.8-billion a year earlier and beat estimates. Earnings rose 57.2 per cent, to $23.7 billion ($1.89 per share) from just over US$15-billion (US$1.17) in the same period last year. The shares ended 2023 at US$139.64 and closed Friday at US$167.24, for a year-to-date gain of 19.8 per cent. Market cap is US$2.07-trillion.
Amazon (AMZN-Q). Amazon also had a good quarter. Net sales increased 13 per cent to US$143.3-billion, compared with US$127.4-billion in the first quarter of 2023. Its North America segment sales increased 12 per cent year-over-year to US$86.3-billion while International segment sales were up 10 per cent to US$31.9-billion, excluding changes in foreign exchange rates. Sales for Amazon Web Services were up 17 per cent year-over-year to US$25-billion. Amazon shares finished on Friday at US$186.21. The stock is up 22.6 per cent from US$151.94 at the end of December. Market cap: US$1.94-trillion.
Apple (AAPL-Q). The stock jumped more than $10 on Friday after the company reported better-than-expected second-quarter 2024 results. Revenue was US$90.75-billion, down over 4 per cent from the same quarter last year as iPhone sales fell 10.5 per cent. But that was better than analysts were expecting. Earnings per share of US$1.53 also beat estimates. The company expects low single-digit growth for its consolidated revenue for the full year. Apple increased its dividend by 4 per cent and will repurchase US$110-billion worth of its shares – the largest buyback in U.S. history. The stock finished the week at US$183.38, down 4.8 per cent from US$192.53 at the end of 2023. Market cap: US$2.83-trillion.
Meta Platforms (META-Q). The share price tumbled after the company released first-quarter results. That came as a bit of a surprise as the numbers were strong. Revenue was US$36.5-billion, up 27 per cent from the same period last year. Net income was US$12.4-billion (US$4.71 per diluted share). That was a gain of 114 per cent on a per-share basis. Investors may have been put off by a warning that the company is keeping a close eye on “an active regulatory landscape, including the increasing legal and regulatory headwinds in the EU and the U.S. that could significantly impact our business and our financial results.” Despite the setback, the stock is up 27.7 per cent this year, closing at US$451.96 on Friday, compared with US$353.96 at year-end 2023. Market cap: US$1.15-trillion.
Microsoft (MSFT-Q). Microsoft isn’t as flashy as some of the other members of this group, but its numbers continue to impress. The latest quarterly report saw revenue increase by 17 per cent over the prior year period, to US$61.9-billion. Net income was US$21.9-billion (US$2.94 per share), up 20 per cent from a year ago. The stock ended 2023 at US$376.04 and closed Friday at US$406.66, for a year-to-date gain of 8.1 per cent. Market cap: US$3.02-trillion.
Nvidia (NVDA-Q). Nvidia wasn’t even part of the old FAANG group. Now it’s the second-largest company in The Magnificent Seven by market cap, at US$2.22-trillion. Five years ago, you could have purchased shares at around US$40. On Friday, they closed at US$887.89. The company’s rapid growth is owing to its dominant position as a producer of chips for artificial intelligence products. Year-end 2024 results (to Jan. 28) showed revenue was up 126 per cent to US$60.9-billion. GAAP earnings per diluted share was US$11.93, up 586 per cent from a year ago. Non-GAAP EPS was US$12.96, up 288 per cent from last year. First-quarter 2025 results are due at the end of May. The stock is on a huge run and is up 79.3 per cent from its 2023 close of US$495.22.
Tesla (TSLA-Q). What the heck is Tesla doing in this group? Its market cap is well below the others, at US$577.8-billion and falling. Its sales are in stall mode. First-quarter revenue was US$21.3-billion, down 9 per cent from the previous year. Net income attributable to shareholders (GAAP) was US$1.1-billion (34 US cents a share), down 53 per cent on a per-share basis compared with the prior year. Tesla stock finished 2023 at US$248.48. It’s now at US$181.19, down 27.1 per cent year-to-date. We either need to find another mega tech candidate or change the branding to The Magnificent Six.
My Internet Wealth Builder newsletter rates Alphabet, Amazon, Apple, Microsoft, and Nvidia as buys. We are neutral on Meta Platforms – we need to get a clearer idea of the financial impact of the “headwinds” the company referred to in its latest earnings release.
We have never recommended Tesla.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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Gordon Pape