Over the past few years, a small group of companies known as the “Magnificent 7” have played a significant role in driving returns in the stock market. These seven companies, which are some of the largest in the S&P 500 index, make up more than 30 percent of the index’s total market value as of late August 2024.
Here’s a look at the Magnificent 7 and how you can invest in these tech giants.
What are the Magnificent 7 stocks?
The Magnificent 7 refer to seven tech stocks that have had a significant impact on the stock market’s returns in recent years, some of which have reached multi-trillion dollar valuations. Here is a breakdown of the companies that make up the Magnificent 7.
*Note: Data as of late August 2024.
1. Apple (AAPL)
Apple is known for its consumer tech products, such as the iPhone, and has a globally recognized brand. The company reported $383 billion in sales during its fiscal 2023 and has Warren Buffett’s Berkshire Hathaway as one of its major investors, although the position has been reduced in 2024.
- Market cap: $3.5 trillion
- Stock price: $229.66
- 5-year return (annualized): 35.1 percent
2. Microsoft (MSFT)
Microsoft is best known for its software products, like Microsoft Office, but also has a presence in the video game industry with Xbox and its acquisition of Activision Blizzard in 2023. The company is also poised to benefit from artificial intelligence through its stake in OpenAI. Microsoft reported nearly $212 billion in revenue during its fiscal 2023.
- Market cap: $3.1 trillion
- Stock price: $415.39
- 5-year return (annualized): 25.6 percent
3. Nvidia (NVDA)
Nvidia has been a major player in the artificial intelligence boom, with its advanced chips experiencing high demand. The company’s revenues reached around $27 billion in fiscal 2023 and are projected to exceed $120 billion in 2024. Nvidia has been one of the top-performing stocks in recent years, creating significant wealth for investors.
- Market cap: $3.0 trillion
- Stock price: $122.05
- 5-year return (annualized): 99.0 percent
4. Alphabet (GOOG and GOOGL)
Alphabet is the parent company of Google, the popular online search engine, and generates most of its revenue, over $307 billion, from advertising. Alphabet also has a cloud business, YouTube, and other ventures categorized as “other bets.”
- Market cap: $2.0 trillion
- Stock price: $165.80
- 5-year return (annualized): 23.0 percent
5. Amazon (AMZN)
Amazon is renowned as the largest online retailer globally and has expanded into cloud computing with Amazon Web Services (AWS). In 2023, Amazon reported approximately $575 billion in revenue, and its co-founder Jeff Bezos is ranked as the third-richest person in the world as of August 2024, according to Bloomberg.
- Market cap: $1.8 trillion
- Stock price: $173.00
- 5-year return (annualized): 14.1 percent
6. Meta Platforms (META)
Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, generated nearly $135 billion in revenue in 2023. The company is investing billions in enhancing its artificial intelligence capabilities, and its stock reached new highs in 2024.
- Market cap: $1.3 trillion
- Stock price: $522.63
- 5-year return (annualized): 23.3 percent
7. Tesla (TSLA)
Tesla reported revenue of nearly $97 billion in 2023, mostly from the sale of electric vehicles. The company offers five different consumer vehicle models, and its CEO, Elon Musk, holds the title of the richest person in the world as of August 2024, according to Bloomberg.
- Market cap: $676.0 billion
- Stock price: $211.60
- 5-year return (annualized): 70.3 percent
How to invest in the Magnificent 7 stocks
Investing in the Magnificent 7 stocks is straightforward, and you may already have exposure to them without realizing it. Here are the primary ways to invest in these tech giants.
- Invest directly in the stocks. You can easily invest in any of the Magnificent 7 stocks through an online broker by placing a trade order using the stock’s ticker symbol and specifying the number of shares you wish to purchase. Check out Bankrate’s list of the best online stock brokers.
- Invest in index funds. If you hold index funds that track popular indexes like the S&P 500 or Nasdaq 100, you likely already have significant exposure to the Magnificent 7 stocks. These companies represent a substantial portion of these indexes, with over 30 percent in the S&P 500 and more than 40 percent in the Nasdaq 100.
- Invest in Magnificent 7 ETFs. Some funds have been launched that exclusively invest in the Magnificent 7 stocks. However, these funds are highly concentrated and may not offer adequate diversification for most investors. Additionally, you will incur the fund’s expense ratio, so it might be more cost-effective to directly purchase these stocks if you are interested.
Risks of investing in the Magnificent 7 stocks
The Magnificent 7 stocks have delivered impressive returns in recent years, benefiting long-term shareholders. However, future returns are not guaranteed, and there are risks to consider.
- Valuations: Many of the Magnificent 7 stocks trade at premium valuations, which could impact their future performance. While these valuations may be supported by strong earnings growth and competitive positioning, some of the optimism may already be priced into the stocks.
- Size: As some of the largest companies globally, these firms face challenges in sustaining high growth rates. For a company like Apple to double its market value from current levels, it would need to add an additional $3.5 trillion, a significant feat.
- Competition: Market leaders are always vulnerable to competition, whether from existing rivals or new entrants. These companies face ongoing challenges that could threaten their dominance in the market.
- Concentration: Investing in just seven stocks means a significant portion of your portfolio depends on the performance of a few companies. Even index fund investors are exposed to the increasing concentration of the Magnificent 7 stocks in their portfolios. Diversification is crucial to mitigate risk and reduce exposure.
Editorial Disclaimer: Investors are encouraged to conduct their own research on investment strategies before making decisions. Past performance of investment products does not guarantee future price appreciation.