The Fateful Eight: Can They Outperform the Magnificent Seven in 2025?

As we approach the midpoint of the decade, investors are looking for the next big thing in the stock market. The "Magnificent Seven" stocks, a group of tech and AI giants, have dominated the market for the past few years, but will their reign continue in 2025? Or will the "Fateful Eight," an expanded group that includes chipmaking and software giant Broadcom, take the lead? Let's dive into the data and analyze the prospects for these stocks in the coming year.



The Magnificent Seven have been on a tear, with the Roundhill Magnificent Seven ETF gaining nearly 1.7% this past week and about 12% over the past three months. However, the Invesco S&P 500 Equal Weight ETF has outperformed for the past three months, suggesting that investors are looking for opportunities beyond the top 10 stocks in the index. But with uncertainty looming, many investors are hesitant to stray too far from the safety of the big guys.



The addition of Broadcom to the Fateful Eight could provide some diversification, as the company operates in a different sector than the other seven stocks. Broadcom's market cap recently surpassed $1 trillion, and the stock is up by more than 45% in the past month. However, the analyst expects the Fateful Eight to experience turbulence in 2025, and does not anticipate them to outperform the Magnificent Seven. This is due to the elevated valuations, tougher earnings comparisons, and economic challenges from renewed inflation or a potential recession.

The forward earnings ratios for the Fateful Eight companies are as follows:

* Alphabet (GOOGL): 27.5
* Amazon (AMZN): 55.5
* Apple (AAPL): 28.3
* Meta Platforms (META): 19.4
* Microsoft (MSFT): 26.7
* NVIDIA (NVDA): 42.3
* Tesla (TSLA): 114.3
* Broadcom (AVGO): 21.2

Comparing these to the Magnificent Seven, we can see that Tesla appears to be the least attractively valued stock among the Fateful Eight, while Alphabet, Apple, and Meta Platforms may offer more attractive valuations compared to the Magnificent Seven.



Inflation and Treasury yields are expected to play a significant role in the performance of these stocks in 2025. With the 10-year Treasury yield close to 4.6% as of Dec. 26, investors are concerned about the prospect of inflation reigniting in 2025. However, better data from the labor market or the Consumer Price Index could put more interest rate cuts in play, which could lift stocks, particularly those in the tech sector that trade better in a "risk-on" environment.



Historically, when the S&P 500 outperforms the S&P 500 Equal Weight index by at least 5 percentage points, as it did in 2023, the index tends to return an average of 17% during the next year. This suggests that the strong performance of the Fateful Eight companies could continue into 2025. However, the analyst expects the market to experience turbulence in 2025, and does not anticipate the Fateful Eight to outperform the Magnificent Seven.

In conclusion, while the Fateful Eight stocks have the potential to continue their strong performance in 2025, the elevated valuations, tougher earnings comparisons, and economic challenges from renewed inflation or a potential recession may make it difficult for them to outperform the Magnificent Seven. Investors should keep a close eye on the economic indicators and earnings reports of these companies to make informed decisions about their portfolios.