The Magnificent 7: No Longer a Monolith

The Magnificent 7, a group of seven US mega-cap stocks, are no longer trading as a monolith. As their share price patterns diverge, selectivity among these stocks is crucial for investors.

The Magnificent Seven (Mag Seven), a group of seven US mega-cap stocks, have traditionally been considered a homogenous group. However, recent trends indicate a significant divergence in their share price patterns, necessitating selectivity among these stocks for investors. This shift is driven by factors such as capital spending strategies and exposure to global supply chains, particularly in the context of artificial intelligence (AI) and trade wars.

Historically, from 2023 to 2024, the Mag Seven stocks, including Apple, NVIDIA, and Meta Platforms, moved in near lockstep, outperforming the S&P 500. This was largely due to their dominance in innovation and growth, driven by their leading role in the AI revolution. However, in 2025, a wide dispersion in year-to-date stock performance has been observed [1].

One key differentiator is capital expenditure (capex). As AI technology requires substantial investment, companies that are spending generously to stay ahead of the curve are being rewarded by investors. Companies like Apple and Tesla, which have spent comparatively less on capex, have underperformed this year. Conversely, NVIDIA and Meta Platforms, expected to increase their incremental capex, have surged [1].

Another crucial factor is domestic sourcing. President Trump's tariffs have posed challenges for companies across sectors, with vulnerability varying based on supply chain structures. Companies with more US-based suppliers have performed better, as seen with Microsoft and Meta Platforms, which have relatively higher US sourcing and lower foreign supply chain exposure. Apple and Alphabet Inc., with more reliance on foreign suppliers, have seen weaker stock performance [1].

NVIDIA stands out as an outlier, performing exceptionally well despite sourcing almost its entire supply of chips from Taiwan. This underscores the importance of rigorous fundamental research to understand the complex set of business factors affecting a company's share price performance [1].

The Mag Seven companies, despite their strong business foundations, are charting different paths. Microsoft and Alphabet, focused on services rather than goods, are less vulnerable to tariff risks. Apple, with a manufacturing footprint largely in China, faces trade-war risks. Each company's distinct business model shapes its future trajectory, making it essential to treat these mega-caps as distinct investment stories [1].

Investors must consider factors such as valuations, management execution, and AI adoption. Passive investment in the entire Mag Seven cohort may expose a portfolio to concentration risk. Active equity investors should conduct thorough research to determine which companies are better positioned for long-term growth and to manage associated risks [1].

References:
[1] https://www.alliancebernstein.com/apac/en/institutions/insights/investment-insights/the-magnificent-seven-no-longer-a-monolith.html