Can the enthusiasm for AI maintain the momentum of the Magnificent 7?

Enthusiasm for artificial intelligence (AI) has propelled most of the Magnificent 7 stocks to outperform the market in 2024, but some are lagging behind. As the year progresses, experts caution that investors' high hopes for this group—comprising Microsoft (MSFT), Amazon (AMZN), Meta (META), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA), and Tesla (TSLA)—may be harder to fulfill, prompting concerns about the sustainability of big tech's AI-driven growth.

Mixed performance among Magnificent 7 stocks in 2024, with Tesla struggling

In 2024, most of the Magnificent 7 stocks have surpassed the S&P 500, driven by substantial gains from Nvidia, Meta, Alphabet, Amazon, and Microsoft due to AI-related growth. However, Apple and Tesla have underperformed, with Tesla experiencing a decline until a recent recovery fueled by strong second-quarter deliveries. This has sparked discussions about Tesla's inclusion in the group despite its recent resurgence.

Challenges ahead for Magnificent 7 stocks as investor expectations rise

Looking forward, there is growing concern about whether the Magnificent 7 can meet the high expectations of investors, according to Steve Sosnick, chief strategist at Interactive Brokers. He highlighted the challenge of delivering on AI-driven promises, given the lengthy development timelines of these technologies, which may delay returns on investment. Goldman Sachs analysts predict strong second-quarter earnings growth for Nvidia, Meta, Alphabet, Amazon, Microsoft, and Apple, significantly outpacing the broader market. However, they caution that any failures to meet expectations could lead to significant market penalties.

Magnificent 7 stocks' impact on market could be significant

The performance of Nvidia, Meta, Alphabet, Amazon, and Microsoft is expected to wield considerable influence over the broader market in the coming months. These stocks accounted for a substantial 62% of the S&P 500's returns in the first half of the year, reflecting a market heavily reliant on a handful of major players. According to Steve Sosnick of Interactive Brokers, this concentration makes the market particularly top-heavy, with its fate closely tied to these companies' performance. Solita Marcelli, Chief Investment Officer at UBS, advises investors to look beyond these tech giants for broader investment opportunities despite their current dominance.