Digest · Tokyo Wire
If you've been in or around the stock market for any length of time at all, then you've almost certainly heard the term. But what exactly are the so-called "Magnificent Seven" stocks everyone keeps talking about? And perhaps more importantly, are any of them worth buying right now?
As is always the case, some are more promising than others. Some of them are still worth buying, while I could take or leave others. There's one Magnificent Seven name, however, I'd make a point of steering clear of, or even selling if you currently own it.
But first things first. Image source: Getty Images. What are the "Magnificent Seven"?
The first known use of the term in this way came from Bank of America analyst Michael Hartnett back in 2023, when he was describing the then-market-leading performances of a handful of enormous, pace-setting technology stocks . Those seven stocks are Apple ( AAPL +1.53% ) , Amazon ( AMZN +0.12% ) , Alphabet ( GOOG +0.61% ) ( GOOGL +0.46% ) , Meta Platforms ( META -3.33% ) , Microsoft ( MSFT +3.66% ) , Nvidia ( NVDA +0.22% ) , and Tesla ( TSLA -1.54% ) . If it seems like the term has been around for far longer, however, that's because there was a 1960 (and 2016 remake) film of the same name.
And it was an appropriate description. Remember, not only was the tech-led post-pandemic recovery in full swing by 2023, but the launch of OpenAI's ChatGPT in late 2022 had sparked an artificial intelligence (AI) race that benefited several technology companies. You may also recall that the electric-vehicle revolution that Tesla started finally reached a tipping point around that time.
Data by YCharts. As could have been expected, however, things have changed somewhat since then. Amazon, Microsoft, and Tesla have all underperformed the S&P 500 ( ^GSPC +0.51% ) for the past year, give or take.
Investors appear worried that Amazon's heavy spending on AI infrastructure won't curb the continued deterioration of its share of the cloud computing market, while Microsoft's chat-based assistant simply isn't getting the kind of traction that ChatGPT and Google's Gemini are. Tesla's losing EV market share to China's BYD as well. The names among these seven that are still rallying aren't necessarily the ones worth stepping into right now, however, just as the laggards aren't necessarily the stocks to avoid.
In fact, I think you could make decent bullish cases and bearish cases for all but one of the Magnificent Seven stocks. The one I'd avoid or even sell right now if I owned it? That's Microsoft.
Why not Microsoft? Don't misunderstand. If you've thought it through and still like it, there are certainly worse stocks to own than the software giant.
There are just too many concerns I have about its business, though, that I fear could undermine not only its recent run-up, but also its performance for the foreseeable future. Based on the company's results for the three months ending in June, clearly not everyone agrees. Shares soared on its 18% year-over-year revenue growth, led by 43% growth of its Azure business, where its artificial intelligence numbers are recorded.
Both numbers topped analysts' estimates, too. The company's even looking for 45% revenue growth from its AI businesses for the quarter ending this month, with a backlog of $678 billion worth of business that's already lined up just waiting to be booked as revenue. Premium Feature Moneyball Superscore 93 /100 Today's Change ( 3.66 %) $ 18.24 Current Price $ 516.17 This future contracted business is something of a double-edged sword, however.
Although it's ready and waiting, given the scarcity and still-rising prices of AI data center hardware, Microsoft's cost and capacity to deliver it isn't set in stone. Generating this revenue could prove unexpectedly costly to shareholders. Another big concern is the company's lack of traction on the AI chat-based assistant front.
Although Microsoft reports there are now a respectable 30 million paid users of the professional version of its Copilot platform that integrates well with the rest of the company's office-productivity software, at a price of between $21 and $38 per month (depending on the version), enterprises are increasingly questioning the cost for the value when cheaper (and even free) alternatives are available ... even if they don't integrate with office software. Either way, Microsoft will run out of prospective enterprise users of Copilot sooner or later, and likely sooner, given that its share of the office-productivity software market continues to dwindle. In this vein, its Windows operating system franchise continues to weaken as the world opts for mobile devices that are displacing personal computers.
It's also difficult to ignore that the free-to-use consumer-facing version of Copilot isn't gaining market share while Google's Gemini and even Anthropic's Claude are, and while OpenAI's ChatGPT still dominates the free AI assistant landscape. Microsoft's Xbox video gaming business is also losing steam, reporting a 10% drop in revenue last quarter after a 5% slide in the prior quarter. So, connect the dots.
Much of the bullishness surrounding this stock is rooted in its artificial intelligence business that may or may not materialize as expected, particularly if enterprises are forced by economic headwinds to dial back their AI investment plans. I'm just not sure I'd be willing to make a bold bet on a company that just three months ago most investors were convinced was more of a liability than an opportunity. Things didn't change that much that quickly, even if its AI business did dish out something of a pleasant surprise in July.
Source: The Motley Fool
