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Mike O’Rourke, chief market strategist at Jones trading and the mind behind the iconic “Magnificent Seven” label for Big Tech stocks, is ringing the death knell for the title. Yes, O’Rourke recently penned a note titled, “R.I.P. Magnificent Seven Era,” asserting that the moniker has outlived its utility.
But is he onto something?
According to O’Rourke, who lays claim to coining the term back in spring 2023, the Magnificent Seven encompassed the top seven stocks that have been steering market sentiment of late. O’Rourke contends that the nomenclature no longer captures the essence of these key market movers.
The current Magnificent Seven lineup includes Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Meta (NASDAQ: META), Microsoft (MSFT), Nvidia (NASDAQ: NVDA), and Tesla (NASDAQ: TSLA). However, O’Rourke now asserts that Meta and Nvidia stand as the real powerhouses within this original group. In fact, he even alludes to the possibility of christening them with a new moniker, perhaps “The Terrific Two.”
“It was last April when we crafted the term ‘Magnificent Seven’ to encapsulate the seven largest stocks in the S&P 500, which had accounted for 88% of the index’s gains in the first four months of 2023,” noted O’Rourke on Thursday. “Current events, coupled with recent developments in February 2024, have sown the seeds for the conclusion of that extraordinary streak.”
Nvidia’s Meteoric Rise Sparks Talks of a “Terrific Two” Era
O’Rourke’s assertion is not unfounded. Nvidia witnessed a historic surge of $277 billion in market cap recently, following its stellar Q4 earnings report last Wednesday. With this, Nvidia overtook Meta’s prior record set earlier this month.
“The actions of these two firms, in addition to their recent moves, are instrumental in dismantling the existing Magnificent Seven paradigm,” O’Rourke penned. “This earnings season has underscored that Nvidia and Meta Platforms possess lower multiples and significantly swifter growth trajectories than the other members of the Magnificent Seven, rendering the latter less appealing due to their pricey valuations and mega-cap statuses.”
O’Rourke also delved into the weaknesses of other Magnificent Seven constituents compared to Meta and Nvidia. In fact, Alphabet, Microsoft, and Amazon all face substantial hurdles to match the growth potential exhibited by META and NVDA.
Tesla, in particular, finds itself at odds within the Magnificent Seven framework, projected to display a decline in earnings while commanding a forward earnings multiple of 65. Notably, Tesla emerges as the most substantial underperformer in this cohort this year, with approximately a 22% dip in its year-to-date performance at the time of writing.
“As the valuation differentials and growth prospects among these industry leaders become more pronounced, investors may pivot towards the winners and explore fresh opportunities,” suggested O’Rourke.
It’s imperative to acknowledge that not all stakeholders are aligned on O’Rourke’s claim to the Magnificent Seven term. Contrary to popular belief, some credit Michael Hartnett, Bank of America analyst, with its genesis. Nevertheless, the true originator remains a point of contention.
As of the publication date, Shrey Dua retained no direct or indirect stakes in the securities referenced in this article. The perspectives conveyed herein represent the views of the writer, adhering to the InvestorPlace.com Publishing Guidelines.
