Is this really it for the basket of once-overperforming stocks known as the Magnificent Seven? It might be, at least according to some folks over at Citigroup (NYSE:C | C Price Prediction), which seems to think that a new group is needed for those looking to go for growth. Indeed, the analysts over at Citi aren’t wrong to declare the construct as “dead,” especially when you look at the stock charts of some of the laggards within the Mag Seven.
With Tesla (NASDAQ:TSLA), one of the spiciest and priciest members of the Mag Seven, completely collapsing close to 15% in a single day following an earnings report that wasn’t taken too well by the market on quite a worrisome day all around, I do think those seeking leadership might be better served looking elsewhere, at least for the time being.
But just because the Mag Seven isn’t half as magnificent as it used to be doesn’t mean it’s time to throw in the towel on the names that comprise the cohort.
Apple (NASDAQ:AAPL) has been quite a surprising winner and leader of the group of late, thanks to its deliberate, cost-effective AI strategy, which, I think, is about to pay off in a huge way as Siri AI launches ahead of one of the deepest lineups of device launches in recent memory.
It might seem a bit far-fetched, but I do think Apple can turn AI into a catalyst that powers a wave of device upgrades, the likes of which haven’t been seen since the COVID lockdown. In any case, high CapEx on AI is being punished again, and as the conflict in the Middle East takes an unfortunate turn, I do think that the Magnificent Seven could be in for more pain before they get a sustained lift.
The Magnificent Seven haven’t performed that magnificently. That’s good news for value hunters
In my view, it’s the group’s lack of magnificence that leads me to believe that most of the Mag Seven are actually deep-value plays. The companies themselves have only gotten more impressive in the past year, including the names that are stuck in a bear market.
Is there a bit more hesitance and caution when it comes to AI endeavors?
Most definitely. But I do think that things are getting just a bit ridiculous, with names like Microsoft (NASDAQ:MSFT) now going for less than 20.0 times forward price-to-earnings (P/E). Arguably, the enterprise AI giant is far better positioned today than just a few years ago.
And as the CapEx ROI becomes more apparent, I think it won’t take long before the name hits new highs again. Perhaps with the exception of Tesla, which isn’t all too cheap, I think the Mag Six will show that it’s very much alive in the second half. I could be wrong, but the AI spenders are going to eventually see their efforts start to pay off.
Once they start earning, I think CapEx will be seen as neutral or even a positive rather than a negative that causes selling after strong quarterly reveals.
The bottom line on the Mag Seven
Once we shift into that proof of AI profitability over promise, I think there will be no stopping most of the Mag Seven as they look to regain their former glory. Of course, not all names will rise together, as some have better seats to the AI show than others.
In any case, recent hedge fund buying activity, I think, suggests the Mag Seven value case is the strongest it’s been in a long time. Even as the group fragments, I still like the group’s chances of topping the S&P 500 in the coming year.
In a way, it feels like there’s a tug-of-war between the Mag Seven and the semis. As the spenders on AI (think the hyperscalers buying the semis) start accelerating their AI-induced earnings, I think we could see flows to the Mag Seven away from the overbought semis as we gain growing evidence of profits trickling up the stack.
The Mag Seven might look “dead” these days, but I wouldn’t bet against their resurrection.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks