Why Institutional Consensus Outperforms the Magnificent Seven: Goldman Sachs Unveils 6 Shared Favorites

Institutional investors are increasingly shifting their focus away from the so-called "Magnificent Seven" tech giants, favoring a diversified basket of non-tech stocks that have delivered robust returns in 2025. Goldman Sachs has identified six such names-CRH, Mastercard, Spotify, Talen Energy, Visa, and Vertiv Holdings-as shared favorites among both hedge funds and large-cap mutual funds. These stocks, collectively outperforming the S&P 500 by 10 percentage points year-to-date, reflect a broader market realignment driven by sector rotation, valuation discipline, and the evolving role of artificial intelligence in revenue generation according to the report.

The Case for Institutional Consensus

The institutional consensus around these six stocks underscores a strategic pivot toward sectors with durable cash flows and defensive characteristics. CRH, a construction materials giant, and Talen Energy, a power generation company, exemplify the Industrials and Utilities sectors, which have seen renewed interest as investors seek resilience amid economic uncertainty according to hedge fund analysis. Meanwhile, Mastercard and Visa dominate the Financials sector, benefiting from sustained consumer spending and a global shift toward digital payments. Spotify, a streaming platform, and Vertiv Holdings, a data center infrastructure provider, highlight the growing demand for AI-driven services and the physical infrastructure supporting them according to market research.

This alignment between hedge funds and mutual funds is notable. Historically, these two investor types have diverged in strategy, with hedge funds often favoring concentrated, high-conviction bets and mutual funds prioritizing broad diversification. The fact that both groups are now overweight in Health Care and Industrials while reducing exposure to the Magnificent Seven suggests a shared conviction in the need for balance according to institutional data. As David Kostin, Goldman Sachs' chief US equity strategist, notes, AI-related gains are shifting from infrastructure providers like Nvidia to companies that directly monetize the technology, such as Meta and Apple according to Goldman Sachs research. This dynamic further supports the case for non-tech names that enable or benefit from AI adoption.

Performance Metrics and Valuation Dynamics

Year-to-date, the six shared favorites have returned 21%, significantly outperforming the S&P 500's 11% gain according to market data. This outperformance is not a recent phenomenon; since 2013, these stocks have averaged annual returns of 16%, outperforming the broader market by a wide margin according to financial analysis. The key drivers include undervalued fundamentals, stable cash flows, and exposure to secular trends such as energy transition (Talen Energy) and digital transformation (Mastercard, Spotify).

Goldman Sachs' cautious stance on the S&P 500-projecting an annualized nominal total return of just 3% over the next decade-further justifies this shift according to Goldman Sachs outlook. The firm attributes this outlook to extreme market concentration in the Magnificent Seven and elevated valuations, which make sustaining recent growth rates unsustainable. By contrast, the shared favorites trade at a discount to the S&P 500, offering a margin of safety in a market increasingly vulnerable to corrections according to investment research.

Long-Term Positioning and Risk Considerations

While the institutional consensus appears compelling, investors must weigh long-term positioning against macroeconomic risks. Goldman Sachs anticipates a global economic rebound in 2026 fueled by fiscal stimulus and monetary easing, particularly in Europe and the US according to market insights. This scenario could benefit equities and corporate credit, but it also hinges on the resolution of geopolitical tensions and the unwinding of trade barriers. For now, the firm recommends a diversified and selective approach, emphasizing that global stocks-especially in the US-remain vulnerable to a near-term correction according to investment analysis.

The shift toward non-tech names also reflects a broader re-rating of value stocks. Altria, Abbott Laboratories, and Hershey, other value-heavy recommendations from Goldman Sachs, highlight the appeal of dividend-paying equities in a low-growth environment according to financial research. This trend aligns with the shared favorites' emphasis on cash flow generation and earnings stability, offering a counterbalance to the speculative premium embedded in growth stocks.

Conclusion

Goldman Sachs' six shared favorites represent a strategic response to the challenges of market concentration, valuation extremes, and macroeconomic uncertainty. By aligning with institutional consensus in sectors like Industrials, Financials, and Utilities, investors can capitalize on undervalued opportunities while mitigating exposure to the volatility of the Magnificent Seven. However, the path forward remains contingent on navigating global risks and maintaining a disciplined approach to portfolio construction. As the firm's research underscores, the key to long-term success lies not in chasing the next tech darling but in identifying durable, cash-flow-driven businesses poised to thrive in a restructured market.