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Magnificent 7 stocks are all over the news. What are they?

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For the past decade or so, a small number of huge-value technology companies have dominated the stock market. The term “Magnificent Seven” represents this group of megacap growth stocks that drive a large portion of the global marketplace. What are these companies and why are they so influential on our economy?

Massive market movers: Magnificent 7 stocks definition

The term “Magnificent Seven” was coined in 2023 by a financial analyst to describe the highest-performing, technology-focused companies ruling (and moving) the financial markets. But the name is actually the evolution of an earlier term you may have heard: FANG or FAANG. Popular CNBC financial reporter Jim Cramer made those acronyms up back in 2013 to encapsulate the tech industry’s biggest players: Facebook, Amazon, Netflix, Google, and later – Apple.

Since then, the list has expanded – hence, The "Magnificent 7." Chosen based on factors like robust financial performance, innovative business strategies, promising market trends, and high trade volume, these tech darlings are so powerful they can affect global market performance all by themselves, regardless of what’s happening in other sectors. In fact, these seven companies account for nearly 30% of the S&P 500 index’s total value.

Today’s Magnificent 7: The 2024 players

The stocks on this unofficial list rotate in and out over time, but you’ll probably recognize most or all of them. As tech companies, many of the Mag 7 also influence our daily lives, driving trends like artificial intelligence (AI) and cloud computing.

Nvidia (NVDA)

“As California goes, so goes the nation.” Expand that theory across the globe and you could be talking about Nvidia, the Santa Clara computer chip manufacturer that’s powering the AI revolution. Many top-selling computers, smartphones, gaming platforms and other tech already run on Nvidia processors – including much of the Magnificent 7. But Nvidia’s specialty in “discrete” graphics processing units (GPUs) – currently the best chips for coding AI software – is what’s propelling the company’s stratospheric value.

Microsoft (MSFT)

Microsoft has evolved from a computer software company to a tech powerhouse, with a diverse portfolio including computer products and software from Windows to Xbox, productivity tools like Office, 365, and LinkedIn, and cloud computing services. Consistent financial performance and the ability to adapt to changing market trends are powerful keys to Microsoft’s success – especially its investment in generative AI with Microsoft Copilot AI.

Apple (AAPL)

Just about everyone knows Apple for its innovative, high-quality, and aesthetic products, with a dedicated fan base that eagerly anticipates each new release. The iPhone and Apple’s growing services business, including iCloud, Apple Music, Apple TV+, Apple Care, and Apple Pay, brought its stock to a record $3 trillion market value in 2022.

Alphabet (GOOG, GOOGL)

As Google’s parent company, it's no surprise that Alphabet makes the Mag 7 list, valued at a staggering $2 trillion. How? It started with Google’s powerful search engine, which blew away the competition with its accuracy and capabilities. But it might be the company’s nimble approach to innovation that made it so wildly successful. Google constantly generates smarter algorithms that deliver the best results – literally setting the standards for online advertising and marketing strategies worldwide.

As of May 2024, only three other companies on the planet are worth $2 trillion: Apple, Microsoft, and Nvidia – all members of the Magnificent 7.

Amazon (AMZN)

Amazon is a household name, and for good reasons. The e-commerce giant continues to dominate the online retail market with its vast selection of products, fast delivery times, and compelling subscription services like Alexa, Prime Video, and Music. Plus, its cloud computing division (AWS) has seen explosive growth in recent years.

Tesla (TSLA)

As the world’s most valuable car brand, Tesla is a groundbreaker in multiple ways. Its electric vehicles totally disrupted the automotive industry worldwide, taking EVs mainstream and investing in a massive supercharger network expansion. It also offers the most advanced self-driving technology out there, and is testing robotaxis next. But Tesla’s valuation can be volatile, as can Elon Musk, the company’s co-founder and CEO.

Meta Platforms (META)

Led by Mark Zuckerberg, Meta is the parent company of some of the most successful and active social media platforms in the world, including Facebook, Instagram, and Whatsapp. Despite its share of controversies, the company's impressive financials, 4 billion monthly users, and continued innovation make it a top stock pick.

How are the Magnificent 7 chosen? Key factors

Candidates for the Magnificent 7 have a high growth potential and likelihood of success. Their robust earnings, innovative approaches, and market leadership set them apart in their sectors. Many investors closely monitor these seven stocks to gauge where the markets are headed overall. They're chosen based on the following loose, unofficial criteria:

Financial performance

Examine the company's revenue growth, profit margins, and return on equity. Companies with solid financials are typically more resilient and capable of delivering consistent returns.

Market trends

Keep an eye on the overall trends in the market and how these companies are positioned to benefit from them. For instance, technology companies might be poised for growth given the increasing digitalization across various industries.

Growth potential

Evaluate the company's growth strategy. Are they entering new markets? Launching innovative products? Companies with a clear roadmap for growth often make good investments.

Trade volume

This refers to the number of shares traded in a day. High trade volume often indicates a high level of investor interest in the company.

By considering these factors, you can spot stocks that have the potential to join the ranks of the Magnificent 7.

So why are they in the headlines?

These stocks grab headlines with their significant achievements, but their underperformance is just as newsworthy. Investors and financial analysts watch these stocks closely because they can indicate the market's overall performance. Moreover, many are well-known brands that consumers engage with daily, increasing the chances of their success or failure becoming viral news of the day.

FAQs on the Magnificent 7 stocks

Q: What factors should I consider when investing in Magnificent 7 stocks?

A: Evaluate the company's financial performance, current market trends, growth potential, and trade volume. Also, assess your risk tolerance and financial objectives. It’s recommended to consult a financial or investment expert before making significant decisions.

Q: Why is financial performance important when selecting stocks?

A: Companies with solid financials may be more resilient and capable of delivering consistent returns.

Q: How do market trends affect the Magnificent 7 stocks?

A: Market trends can influence the industries that these stocks represent. For instance, technology companies might be poised for growth given the increasing digitalization across various industries.

Q: What does growth potential indicate about a stock?

A: Growth potential indicates a company's ability to increase its profits over time. This could be through expanding into new markets or launching innovative products.

Q: What is trade volume and why is it important?

A: Trade volume refers to the number of shares traded between buyers and sellers in a day. High trade volume often indicates a high level of investor interest in the company.

Q: Are the Magnificent 7 stocks a sure bet for investment?

A: There’s no such thing as a sure bet. While these stocks show strong potential, investing in stocks always comes with risks. It's crucial to do your own research and consider seeking advice from a financial advisor. Any stock can experience fluctuations in value. In other words, there's always a chance you could lose money.

Q: What industries do the Magnificent 7 stocks typically represent?

A: These stocks represent a diverse range of industries, from technology to biotech to renewable energy. They also change over time.

Q: Is investing in the Magnificent 7 stocks suitable for beginners?

A: While these stocks can offer substantial returns, they may also carry higher risk. Beginners should consider their risk tolerance and investment goals before investing.

Q: Can I invest in the Magnificent 7 stocks through a mutual fund or ETF?

A: There are several mutual funds and ETFs that include some or all of the Magnificent 7 stocks in their portfolios. Consult with a financial expert before investing and carefully review the funds to confirm which company stocks are included.

Remember, investing in stocks always comes with risks. It's crucial to do your own research and consider seeking advice from a financial advisor before making any investment decisions. Whether you're looking into the Magnificent 7 stocks or any other investments, always educate yourself and have a solid investment plan in place. Happy investing!

This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.