The term “Magnificent Seven” traces its original roots back to 1954, a Japanese film revolving around seven samurais.
The original Japanese film has been remade into Western films.
Two times to be precise.
Although there are no plans for the 3rd remake, the Magnificent Seven is the talk of the town again when Bank of America analyst Michael Hartnett used it to describe 7 US stocks that are perhaps the stocks of the decade.
The Magnificent 7 in the investing world – as of the time of writing (no certainties that the current Seven will retain their places) are as below:
- Microsoft Corp (NASDAQ: MSFT)
- Amazon.com, Inc. (NASDAQ: AMZN)
- Meta Platforms Inc (NASDAQ: META)
- Apple Inc. (NASDAQ: AAPL)
- Alphabet Inc (NASDAQ: GOOGL)
- NVIDIA Corp (NASDAQ: NVDA)
- Tesla Inc (NASDAQ: TSLA)
The Seven are illustrious – their names, brands, or products are well-known even to the non-investing individuals.
But as of late, even the Magnificent Seven are not spared from the recent correction.
So which of these Seven are still magnificent after the correction and are still showing key fundamental strengths?
Let’s explore:
1) Microsoft Corp
Microsoft Corp (MSFT) is a boomer stock among the Seven if ranked based on the age of the company.
However, this boomer stock has pivoted from delivering PCs to every household to a technology conglomerate.
Even in challenging periods, MSFT managed to record a revenue of USD 56.5 billion for Q1’24, a growth of 13% YoY. Gross margins expanded by 2 pts to 71%, while net income and diluted earnings per share grew by 27% YoY.
What is also impressive is the cash flow, where operating cashflows is up 32% YoY due to strong cloud billings and collection. Free cash flow is up 22% YoY.
Share prices jumped around 6% post results, as this set of results beats estimates, coupled with better revenue guidance.
2) Amazon.com, Inc.
Amazon did not have a great 2022.
2022 was a year of slowdown for the e-commerce and cloud player, marred by soaring inflation and rising interest rates.
But things took a swift change in 2023.
Sales are up 13% YoY, as its E-commerce business in North America, International, and AWS reported growth across the board.
Aggressive cost-cutting measures for the past year helped expand its operating income by 343% YoY. International e-commerce is on track to operating profit, while AWS’s operating income swelled by 29% YoY.
One bright spot for Amazon is its digital advertising, as ad revenue soared 26% YoY, as third-party sellers bolster their ad spending on Amazon’s platform.
3) Meta Platforms Inc
Meta Platforms has had its fair share of troubles.
Just one year ago it endured its worst sell-off – a peak-to-trough correction of -75%!
Poor growth in active users, lower net income, and a lack of innovation, coupled with hefty competition from TikTok, was the ultimate combination of nightmares for this advertising company disguised as a social media company.
However, all seemed temporary as Meta stayed resilient and staged a revival.
Meta is firing on all cylinders for its revenue across each user geography. And surprisingly, it is one of the frontrunners in applying AI to enhance its platforms and advertising.
Meta’s Advantage+ tool empowers advertisers to test different ad campaigns using a machine-learning algorithm. Its short-form video feature Reels is yet another example of imitation as the best form of counter-attack.
Cost also tapered down significantly, pushing net income to USD 11.58 billion, which translates to an earnings per share of USD 4.39 per share.
The Facebook app might be for boomers, but Meta Platforms as an investment, is still as meta as ever.
4) Alphabet Inc.
Alphabet Inc., more commonly known as Google, reported a set of respectable results.
Google advertising, which encompasses Google Search, YouTube ads, and Google Network, grew by 9.5% YoY. Cloud grew by 22.46%, but fell short of analyst expectations, causing a slight correction.
Cloud revenue misses happen often to other cloud providers as well, just like AWS a few quarters back.
But that does not change the fact that Google’s free cash flow and free cash flow margin are still robust and strong.
And with mobile internet becoming more mainstream, Google just announced its mobile-first indexing just completed. This might continue to solidify Google’s moat in the search and advertising business.
5) NVIDIA Corp
The one that stole Thunder the most out of the seven, in my opinion, is none other than NVIDIA.
In October 2022, Nvidia was battered down from its all-time high of USD 300 per share to USD 112 per share.
But when the AI mania and concepts rolled out, NVIDIA swiftly became the stock darling of 2023.
Data Center has been pivotal, as NVIDIA became the go-to solution for AI-related muscle lifting deep learning.
Trending in tandem with a fat gross margin of 70% for 1H 2024 is its monstrous free cash flow – USD 8.7 billion, which already eclipsed the total USD 3.8 billion for FY 2023.
Now you know why it is the stock to beat for 2023.
6) Apple Inc
How fast the tides turned.
Apple, alongside Tesla, has been the stock darling for the past few years.
2023 as of now, does not seem to be the year Apple shines through.
Revenue is flattish YoY for Q4’23. Just like Q1 and Q2, Apple failed to exhibit any growth compared to the same quarters back in 2022.
iPhone sales have been the saving grace. But Mac and iPad sales have been disappointing. Even wearables, home, and accessories which sought to chart Apple’s next hardware frontiers, are also down.
Perhaps we are seeing a transformation in progress – from a more hardware-centric company into a service-orientated company.
On the other side of the coin, hardware sales are what make Apple’s walled gardens impregnable. Services can only grow so long as more Apple devices are being sold.
Need more reasons to doubt Apple? Operating cash flow is on a downtrend, and so is Apple’s free cash flow margins.
7) Tesla Inc
Tesla has been THE go-to stock for the past many years.
But as of last year, the stock seemed to have lost its luster. In fact, if it weren’t for the sake of finding 7 stocks to form the Seven, Tesla might not have made it.
Critics will remind me that YTD TSLA is up 103.90% as of the time of writing.
Sucker punch incoming: I would like to remind the critics that TSLA is still down 48% from its peak of around USD 400 per share.
And the rest of the Seven have shown a resilient set of results, or have bounced back from their toughest period.
Tesla might be in for its toughest period yet.
And now that Tesla is not a hypergrowth stock and ekes out a profit trend, it does not look cheap. It is looking more like a car manufacturer masquerading as a tech company.
The price slashing might have sustained the topline growth momentum. But from quarterly observations, the momentum looks to be running out of steam.
Gross margins have also tumbled below 20%.
If Apple products are not selling due to the current economic climate, then what more could be envisioned of electric vehicle sales?
At least, Apple’s price adjustments on its products are not showing any desperation like Tesla’s.
Are you worthy of the Seven?
It’s yet another cool lingo that has caught the investing world.
We have gone from FAANG to MANGA and now the Magnificent Seven.
But you know what’s cooler? Holding on to components that made up FAANG or MANGA back then up till now.
The returns have been astounding.
So long as the worst is over, the Magnificent Seven would still prevail and go to greater heights.
But the question is, are you also a magnificent investor, worthy to hold on to the right ones for years to come?
