The Magnificent Seven refers to a group of influential companies in the U.S. stock market, primarily known for their performance in the technology sector. These firms have notably shifted focus towards artificial intelligence over the past few years, garnering significant attention from investors. Earlier this year, I made predictions about how these companies, often hailed as some of the most significant players, would fare throughout 2024 in my Fry’s Investment Report. As we edge towards the end of the year, it's interesting to reflect on those projections, which have proven largely accurate, though not without surprises.
Nvidia Corp. has distinguished itself with an astounding 174% increase thus far in 2024, dwarfing the S&P 500 Index's 21.6% return. On the other hand, the remaining six companies in this elite group have collectively gained 18.9%, slightly underperforming the broader market. This relatively modest underperformance, however, doesn't detract from their commendable double-digit gains. Nevertheless, concerns loom regarding their ability to sustain growth amidst significant AI-related investments and in light of upcoming political changes. A glimpse into their recent earnings reports may provide insight into their imminent future.
For instance, Tesla Inc. reported a 20% earnings surprise despite missing the revenue expectations, prompting a bearish outlook amidst slowing EV sales. Alphabet Inc. showcased notable growth in cloud services and AI, whereas Meta Platforms experienced its lowest year-over-year growth since 2023, as high AI expenditure and infrastructure costs posed challenges. Microsoft, while posting strong results, faces delays from suppliers, potentially disrupting future demands. Amazon’s earnings revealed a slight underperformance in AWS revenue, although there was substantial investment growth in AI infrastructure. Similarly, Apple reported robust iPhone sales and continued efforts in AI, though faced a hit from a European tax decision.
Looking ahead, while these formidable companies continue to lead globally, they aren't immune to market pressures. High valuations pose risks reminiscent of Icarus’ wax wings, potentially leading to a correction as valuations settle. Furthermore, the rise of artificial intelligence heralds a shift, with implications seen across various companies and industries. This changing landscape, augmented by the coming presidential election, adds layers of uncertainty to the stock market. Although the core issues remain under-discussed among political candidates, investor sentiment could still be influenced.
According to my colleague Louis Navellier, a radical market shift is anticipated post-election, with AI stocks potentially at the forefront. He speculates that November 6 could herald significant market disruption, influencing investment strategies. Louis advocates preparation using specialized quantitative tools to navigate this uncertainty, offering opportunities to capitalize on the volatility. His presentation, available for those keen to understand the possible market upheaval, provides strategic insight ahead of the election.
