There was a time when the FAANG stocks used to rule the markets.
FAANG stands for Facebook, Apple, Amazon, Netflix and Google.
However, times have changed, and now the FAANG group of super-star performers have been sidelined by the Magnificent Seven.
Bear in mind, that these aren’t formal designations. These groupings are an easier, far more accessible way for investors, analysts and business journalists to refer to stellar performance-delivering stocks.
The new clique of super-star performers, that is, the Magnificent Seven comprise Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla. These seven together pull in a sizable chunk of funds that are invested in the US indices.
The presence of the Magnificent Seven is so significant that their market cap contributes to 40% of the Nasdaq 100 and more than 29% of the S&P 500. If you club together Microsoft, Apple, Google and Tesla, their collective market cap is equal to about 18% of the S&P500 and touches the 25% market cap level of the Nasdaq 100.
The Magnificent Seven do richly merit the nickname that they have been given. Consider, for instance, that in the first quarter of FY24, the quarterly earnings of Magnificent Seven leapfrogged by an impressive 37%, whereas the quarterly earnings of all the remaining 493 companies in the S&P500 universe contracted by two and a half percentage points.
This statistic should suffice in explaining the immense popularity and following that the Magnificent Seven command in the markets.
Holding the fort
At a time, when the fear of high-interest rates and a dire and unsparing recession looms over the US economy, it is the Magnificent Seven stocks that have kept the investors’ enthusiasm buoyant in the markets, and have helped them clinch handsome returns during the last few years.
In the first quarter of 2024, when the S&P 500 handed out 10% returns to investors, the Magnificent Seven performed much better and investors earned 17% returns.
However, as the AI buzz continues growing, strong returns divergence is emerging within the grouping. Nvidia, for example, has made investors richer by 83% whereas Tesla has sadly suffered a 30% decline as customers are veering away from EVs to conventional and hybrid cars.
There is also a lot of froth in the markets. Despite Apple repeatedly cutting its estimates in the last FY, investors and traders kept the stock price surging by 50%, all the while ignoring the fundamentals. In FY24, the stock has been on a course correction, and has, consequently, sunk by 11% year-to-date.
Tesla is also going through its fair share of troubles. The company’s stock price zoomed up last year from $113 on January 1 to $237 on December 31. However, the new year hasn’t brought in much cheer. Consumer demand seems to be tapering, and the threat of Chinese competitors like BYD seems to be on the rise. Meanwhile, Tesla is forced to cut prices to stimulate customer demand, which is eroding the profit margin of the company.
Rise of the Fab Four
While Apple and Tesla have soured investors’ expectations, the other four big tech stocks in the Magnificent Seven still seem to be at the top of their game.
Nvidia, Microsoft, Amazon and Meta have all made money for their investors. Nvidia, for one, has been a market favourite. Year-to-date, it has secured 83% returns and 230% returns in the last year. Meta has also put up a spirited fight delivering 37% gains this year, and nearly 134% in the last year.
Amazon has been chugging along handsomely with 19% returns this year, and 77% returns in the last year. Microsoft has clinched 48% returns for its shareholders in the last 1 year.
How can Indian investors invest in the Magnificent Seven?
With the Appreciate app, Indian investors can safely and securely invest in the Magnificent Seven stock of their liking. Since the USDINR conversion rate is so high, Appreciate lets its customers buy fractional shares. This way, retail shareholders can get exposure to reputed global businesses at a fraction of the cost.
