Magnificent Seven Underperforms in 2023
All seven stocks classified as the “Magnificent Seven”—Apple, Alphabet, Tesla, Nvidia, Meta Platforms, Microsoft, and Amazon—have underperformed the S&P 500 in 2023, with year-to-date declines following a robust three-year rally. Collectively, these companies are projected to spend approximately $700 billion on AI infrastructure this year, raising concerns about overspending and return on investment.
Market Trends Favor Small Caps
Meanwhile, small-cap stocks have outperformed large caps, as shown by the Invesco S&P SmallCap Information Technology ETF, which is up 6%. The Russell 2000 index is flat for the year but has outshined the S&P 500, indicating a market shift towards diversifying investments beyond major tech companies amid heightened investor skepticism.
Valuation Insights
Despite the recent downturn, valuations for the Magnificent Seven are becoming more attractive. Excluding Tesla, their price-to-earnings ratios align with the S&P 500’s P/E of 25.6, while all seven firms continue to report double-digit revenue growth. Nvidia, although the most expensive stock in the group, is projected to achieve adjusted earnings per share growth from $4.77 to $8.29, leading to a forward P/E of under 21.
