The Magnificent Seven group of mega-cap tech stocks need to deliver stellar earnings to keep outperforming the broader market, according to a growing consensus on Wall Street.
The group — comprised of Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. — doubled in value in 2023, outperforming the broader Nasdaq 100 Index's 54% rise. The majority extended gains this year — with the exception of Tesla and Apple.
Optimism about a stronger-than-expected economy, peaking interest rates and artificial intelligence have helped bolster the stocks.
Investors are now questioning if gains can be sustained through 2024 and if the grouping of seven will remain intact as their performances differentiate.
Tesla has dropped 24% this year, while Meta is up 34%. The Facebook parent on Friday saw the biggest single-session market value gain in history.
"As the Dot Com boom showed, continued outperformance requires stocks to exceed the high bar set by consensus," a Goldman Sachs Group Inc. team led by David Kostin said. "The "fate of the magnificent 7 stocks depends on their ability to deliver rapid revenue growth in 2024," he wrote.
The strategists noted a wide dispersion of consensus growth estimates across the group. That's highlighted by varying degrees of revenue expectations for this year.
While Nvidia's revenue is expected to soar 119% from a year prior, Alphabet's is seen dropping 7%, according to data compiled by Bloomberg.
Others suggest a more selective approach to Magnificent Seven allocation. Berenberg strategists prefer to be exposed to some of these stocks, but not all of them, especially as the U.S. technology sectors' valuations are lofty versus global peers, providing a sell signal.
