How will the “Magnificent 7” tech stocks fare in 2024?

Experts and pundits anticipate the “Magnificent Seven” tech stocks to continue influencing the market in 2024, although they might face particular challenges.

The term “Magnificent Seven”  refers to a group of leading technology companies known for their significant influence and size in the market. This group includes Apple, Amazon, Alphabet (the parent company of Google), Microsoft, Facebook (now Meta Platforms), Tesla, and NVIDIA. These companies, recognized for their innovation and market dominance, have been key players in shaping the technology industry and have a substantial impact on global stock markets. Their combined value and influence make them a focal point for investors and analysts in the tech sector.

These stocks have been pivotal in driving the market rally in 2023, largely fueled by the artificial intelligence (AI) craze. Nvidia, for instance, emerged as a major beneficiary of the AI boom in 2023, with a significant return, followed by Meta Platforms which also saw a notable surge in its shares. This trend is expected to persist into 2024, with many experts believing that the journey in AI for these market leaders is just beginning, and further innovations in this field will unfold.

Cloud computing is another promising area, with Amazon, Microsoft, and Alphabet dominating the sector. The cloud infrastructure services market is projected to grow considerably by 2032. Despite this, Amazon’s e-commerce business could face increased competition, impacting its share value.

Goldman Sachs points out that these mega-cap tech stocks have superior fundamentals compared to the rest of the S&P 500. They are expected to experience a higher compound annual growth rate (CAGR) through 2025, with net margins double that of the rest of the index. Despite high price-to-earnings valuations, these stocks align with market averages when adjusted for growth.

However, Tesla, the renowned electric vehicle (EV) manufacturer, may face reduced market share in 2024 due to stiff competition. Its dominance in the U.S. market has decreased, and the need for more affordable EVs, coupled with potential low demand, might pose challenges.

For investors interested in these stocks, ETFs such as the Roundhill Magnificent Seven ETF (MAGS) and MicroSectors FANG+ ETN (FNGS) provide concentrated exposure to these companies.

Overall, while the “Magnificent Seven” tech stocks are expected to continue their strong performance, they may face new challenges and competition in the coming year​​​​.

One expert, Matt Benkendorf, the Chief Investment Officer of the Vontobel Quality Growth Boutique, commented on the prospects of the “Magnificent Seven” tech stocks. He noted that these stocks don’t get the advantage of starting the year weak, which could have been a beneficial position. Vontobel Quality Growth holds Microsoft, Amazon, and Alphabet in its portfolios but not the other four companies, where Benkendorf sees more operating challenges. This perspective highlights the varied outlooks on the tech giants, depending on their individual market positions and operational circumstances​​.