The Magnificent 7 Stocks Amidst Global Economic Shift

Today, more than ever, investors need a robust strategy to navigate the ever-changing stock market. We’ve been witnesses of the tech giants, including Meta Platforms and Amazon, soaring since their inception. However, the recent varying stock returns on critical players like Nvidia and Tesla underscore the importance of a solid investment strategy. 

The problem with the meteoric rise of the seven US tech giants is that wages haven’t kept up with the growth and escalating prices. Experts also show concerns about monopolistic behavior risks that could lead to missed investments. Right now, the best course of action is to stay flexible and focused on risk management. So let’s dive deeper into the repercussions of the power of The Magnificent 7 Stocks Amidst the Global Economic Shift and the alternative stocks that could outperform the Big Seven.

Key points we’ll focus on in this article:

1. The rise and fluctuations of the “Magnificent Seven” stocks.
2. Their market influence includes almost half of Nasdaq’s weighting.
3. Nasdaq’s rebalancing efforts to mitigate the weight of these seven behemoths’ concentration on the market. 
4. Market cap and return of most prominent tech companies in the world
5. Inflation and supply chain disruption concerns
6. Alternative investment opportunities

Growing FAANGs for Global Market Dominance

Back in 2013, CNBC analyst Jim Cramer coined the term “FAANG,” representing Facebook (now Meta), Amazon, Netflix, and Google (now Alphabet), as a concise reference to the top-performing technology stocks in the market. With Apple’s inclusion in 2017, the acronym became FAANG.

However, in the past year, a fresh label introduced by Bank of America analyst Michael Hartnett has drawn attention to the most valuable and widely held companies in the American stock market: the “Magnificent Seven” stocks.

Nasdaq’s Rebalancing Act 

The seven technology-oriented companies have grown so much that they are now weighing down on the Nasdaq and S&P 500. Since these stock market indexes focus on how much companies are worth instead of individual stock prices, GOOGL and TSLA, for example, get a say in how the overall stock market performs. Over at the Dow Jones Industrial Average, which focuses on the price of stocks and not on the company’s value, the “Magnificent 7” stocks don’t hold much weight. Therefore, Nasdaq is actively changing its stock portfolio to reduce the influence of the seven US tech giants. However, the changes have only managed to lower the total weighting of these mega-caps from over 50% to nearly 50%.

The Magnificent Seven’s Market Cap and 5-Year Returns

The Magnificent Seven, including four FAANG stocks (Facebook, Amazon, Apple, and Google), Nvidia, Tesla, and Microsoft, make up 25% of the S&P 500 and over 50% of the Nasdaq 100. Five of these mostly tech companies are in the trillion-dollar club, with Nvidia being the last to arrive at the party. 

What makes these companies soar above others is their tremendous capacity to collect customer data and use it to their advantage. Not to mention that innovating with the latest technology and leveraging AI is at the core of their missions.

Netflix has been left behind this elite group because of its disappointing performance in 2022. However, If it regains its altitude, we will soon witness another global economic shift towards the dominion of eight mega-cap companies.

Ranking and market cap of companies as of November 6, 2023, with five-year stock performance:

A Deep Dive into FAANG: Returns, Market Impact, and Strategic Outlook

FAANG stocks play a crucial role in driving market performance, particularly in the realm of artificial intelligence (AI):

1. Meta Platforms has outperformed with over 3 billion daily active users, despite its strategy focusing on the Metaverse in recent months. 
2. Alphabet has faced some challenges in the AI landscape. Still, its unwavering focus on improving search algorithms and user experience has kept it afloat and a vital FAANG member.
3. Apple’s recent sales slump has barely put a notch in its stock prices. Also, the Apple Vision Pro headset they are developing shows promise in driving profit growth.
4. Netflix’s password crackdown is working. Their subscriber numbers are growing. However, the Hollywood strikes have threatened to defer content production.
5. Amazon.com has never stopped growing. Besides its e-commerce success, AI investments and developments also show great potential.

Investing in FAANG stocks has historically been lucrative, with impressive 10-year returns. 

How the Big Seven Pivot the S&P 500 Landscape

The “Magnificent Seven” (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla) have played a pivotal role in propelling the index to record highs. Their collective ability to deliver outstanding financial results has pivoted the entire S&P 500 towards a consistent incline through these factors:

• The market dominance of these tech corporations significantly influences the S&P 500’s movements.
• Their strong positions in the market drive innovation in generative AI, cloud computing, e-commerce, electric vehicles, social media, and so on. 
• The performance of these seven mega-caps often sets the tone for the entire market and dribbles down on smaller companies. 
• Positive earnings reports, strategic announcements, and technological breakthroughs from the Big Seven fuel investor optimism, further boosting the S&P 500 score.
• As leaders in their respective industries, their stock trajectories serve as a compass for the overall health and direction of the economy.
• These seven AI-led companies consistently deliver strong financial results, as seen in the table above.

Recently, analyst Seth Goldstein discussed Tesla’s (TSLA) earnings and the growing deceleration concerns affecting the company’s short- and long-term revenue. Despite recent selloffs in the stock, Goldstein suggested holding off before considering an entry point until Tesla stock can provide a substantial margin of safety.

Last month, the Netflix (NFLX) team announced a surge in subscriber numbers, fortifying their spot among giants, even though they haven’t yet earned back their place among the Big Seven.

We will have to wait until the end of February for the Nvidia team to release earnings. And with that, the reports of top stocks will be complete.

Balancing Optimism and Caution Amidst the Global Shift

As mentioned above, the seven mega-caps heavily impact global market performance through their power in the market, investor preference, and global reach. However, their recent earnings reports outperforming most nations raise concerns about economic dependence. 

Relying solely on these companies could increase market monopoly, saturation, and regulatory and legal risks. The consequences for the global financial market could be far-reaching, so traders advise increased caution. 

7 Stocks to Buy to Outperform ‘The Magnificent Seven’

While the “Magnificent Seven” stocks continue to dominate, other stock opportunities promise investors significant growth. And diversifying your portfolio is never a wrong move. Here’s a closer look at seven such stocks:

1. FTAI Aviation (FTAI):

FTAI is in the business of upkeep and ownership of commercial jet engines. FTAI Aviation has been delivering an admirable performance in the stock market, with a five-year return of nearly 350%. The company also boasts robust cash flows, low debt, and significant earnings growth potential.

2. Super Micro Computer (SMCI):

Super Micro Computer has been riding the AI and data center wave, surging its stock price by 181% this year alone. On Friday, Super Micro Computer tanked 20%, but it is still the third-best rally out of 3,000 of America’s highest stocks and up by 770% over the last 12 months.

3. SurgePays (SURG):

SurgePays seem to be flying high, even though it is still under Wall Street’s radar. With its focus on B2B fintech and providing valuable services for the underbanked and underserved demographics, SurgePays shows promising growth potential, with a 41.8% increase since Q3 2023. However, their revenue may have hit short-term roadblocks, with a stock decline of -5.56% in Q3 2023. Overall, they are demonstrating steady growth and great potential.

4. Synopsys (SNPS):

As a leading electronic design automation company, Synopsys expects revenues between 1.63 billion and 1.66 billion USD in the first quarter of 2024 alone. With such dramatic revenue growth, it’s no surprise the software company exceeded the Zacks.com estimate with an average of 4.4%.

5. TransDigm Group (TDG):

TransDigm Group constitutes 48 independent companies in the aerospace and defense industry. With solid profit margins showing a 10% increase over the past 12 months, TransDigm Group continues to prove its resilience in the aerospace industry.

6. Axon Enterprise (AXON):

Axon Enterprise specializes in supplying non-lethal weapons and public safety technologies to law enforcement agencies globally. Its shares have made a comeback with an 8.1% increase in January. The company will publish its Q4 2023 report on February 24th, so pay attention to that if you want a compelling investment option.

7. MercadoLibre (MELI):

Recently, on Zacks.com, one keyword has been popping up more than others. A Uruguay-based e-commerce platform that hosts multiple marketplaces across Latin America. MercadoLibre, also called “Amazon of Latin America,” has bounced back from recent difficulties, with a 6.8% increase in January, compared to the Zacks S&P 500 composite of +4.6%.

Conclusion

The seven US tech giants have outearned almost every G20 country. Such a discrepancy creates a tremendous gravitational pull for investors around “The Magnificent Seven.” The tech behemoths returned an incredible 107% in 2023, single-handedly outrunning the MCSI USA index with its 27%.

Such movement in the global market creates a heightened risk of monopolistic tendencies and regulatory risks. Nevertheless, since AI-led stocks are resilient and scalable, investors will likely continue supporting them. Still, they might need to take advantage of alternative investment options in various sectors mentioned in this article, starting with aviation, weaponry, and e-commerce. The prudent choice would be to carefully monitor market developments and diversify your portfolio. And if you can’t stay away from AI, look into the generative AI companies’ stocks, which are showing great results already.