‘Magnificent Seven’ AI stocks make up a huge part of the S&P 500
Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Those of you that have flipped on CNBC either on purpose or by accident sometime in the past two years may know those companies as the so-called Magnificent Seven, or “Mag 7” in Wall Street-speak.
They’re all huge American tech companies — they’re all investing heavily in artificial intelligence — but the reason they’re “magnificent” is because over the last two years, their stock prices have soared to the point where those seven companies now account for over one-third of the value of the entire S&P 500, which, let’s reiterate, has 500 companies.
This level of stock market concentration is basically unprecedented.
“I don’t think if you go back in history you can see a period of time where the top five, the top seven, the top 10 U.S. companies are so dominant,” said Michael Hartnett, chief investment strategist at Bank of America, who coined the term Magnificent Seven.
If maybe some of these multi-billion dollar AI bets don’t pan out the way these companies thought, it won’t just tank tech stocks.
“If they suddenly trip up, yeah, that can quickly cause a big decline in the stock market and in turn that will have an instant impact on whether individuals get up in the morning or companies get up in the morning and say we’re going to spend more money or less money,” Hartnett siad
If that scenario sounds eerily reminiscent of the dot-com bust of the early 2000s, there are definite similarities. But unlike Pets.com, the “Mag 7” are actually making money right now. Like, ungodly amounts of money.
“These are companies that have very, very healthy balance sheets,” said Nelson Yu, head of equities at Alliance Bernstein.
Investors have plowed money into the Magnificent Seven because they think AI is going to be the next big thing. But Rob Arnott at the investment firm Research Affiliates said even if those investors are right on AI, they could be wrong on the timing.
“Technological revolutions generally happen slower than anticipated,” said Arnott. “Humans by their very nature embrace change gradually, they don’t like it crammed down their throats.”
The internet did not take over the world overnight. Maybe the robots won’t either.