From Magnificent 7 to Fantastic 4?
7 Tech Giants Scrutinized
23 June 2024
In 2023, the Magnificent 7 (or fantastic 7 stocks), as shown in the price chart below, dominated global financial markets, drove overall trends, and captured the imagination of investors. These seven tech giants experienced an astonishing rise in stock values, demonstrating the period’s technological growth.
Magnificent 7 stocks chart: cumulative percent change in stock price from Jan 3, 2023, to Dec 29, 2023
Source: TradingView [1]
But will the Magnificent 7 performance maintain momentum in 2024? The tech landscape is rapidly evolving and not all members of this elite group are keeping pace, as reflected in the price chart below. Recent earnings reports and market trends suggest that their collective fortunes may be changing. Could the days of the Magnificent 7 have come to an end?
Magnificent 7 stocks chart: cumulative percent change in stock price from Jan 2, 2024, to May 21, 2024
Source: TradingView [1]
A closer look at their recent financials and market activity reveals a complex picture. While some companies struggle with internal and external challenges, others continue to innovate and grow, suggesting a possible redefinition of what makes a tech giant ‘magnificent.’ In this newsletter, we examine the recent developments of some of these tech titans, analyze their performance, and explore what their future may hold.
Tesla: Losing Its Spark?
While still a leader in the electric vehicle industry, Tesla’s grip on the top spot is loosening as it faces significant challenges in 2024. The failure of the Tesla Supercharger [2] project, resulting in layoffs and facility closures, has cast a shadow over its future prospects. Despite ambitious plans to ramp up production and introduce new models, the company struggles with internal and external pressures.
Tesla’s latest Q1 2024 [3] earnings report paints a worrying picture: total revenue fell nearly 9%, and net income by 45%, year-over-year. The company grapples with production costs, supply chain disruptions, and intense competition from emerging EV manufacturers and traditional auto giants like Ford, General Motors, and Chinese SAIC Motor.
The revenue in the company’s automotive segment experienced a 13% decline, and external factors such as production ramp issues and factory shutdowns exacerbated these challenges. Tesla’s forays into AI and self-driving technology have faced regulatory hurdles and technological setbacks, impacting investor confidence in the company.
Apple: A Mixed Outlook
Apple’s latest results [3] reflect a challenging landscape with some bright spots. The 10% year-over-year decline in iPhone sales is a significant concern, particularly affecting the Pro models. Despite lowered forecasts Apple beat expectations, but the overall performance indicates potential headwinds.
Apple reported a 4% year-over-year decline in net sales. Services revenue, which includes the App Store, Apple Music, and iCloud, grew 14%, offsetting declines in hardware revenue. However, iPad and Wearables, Home, and Accessories also saw significant revenue declines of 17% and 10%, respectively.
Margins remain robust, with an overall gross margin of 46.6%, slightly up from the previous year’s 44.3%. However, the focus on stock buybacks over significant investments in AI and semiconductor development raises questions about Apple’s long-term strategy.
Amazon: Stable but Capped
Amazon’s earnings report [3] reveals mixed signals about its growth potential. Despite a 13% year-over-year increase in net sales, the company has lowered its revenue guidance, raising concerns about future growth.
Amazon Web Services (AWS) continues to be a strong performer, with a 17% increase in sales, contributing significantly to overall revenue. However, the e-commerce giant’s core segment faces challenges. Operating income rose to $15.3 billion, driven by increased unit sales and advertising revenue, yet higher shipping and fulfillment costs offset these gains.
Google: Sustaining Growth Despite Competitive Pressures
Alphabet Inc. remains a key player in the tech industry [3], demonstrating steady growth despite market challenges. In its monetization metrics, paid clicks increased by 5% and cost-per-click rose by 8%, suggesting higher engagement. However, impressions from the Google Network fell by 13% while cost-per-impression grew by 14%, influenced by shifts in device usage, geographical distribution affecting ad performance, and the mass adoption of artificial intelligence, which in turn takes over some of the search engine functions.
Google Cloud, another significant revenue source, expanded by 28%. Despite this growth, the swift rise of competitors like Microsoft Azure and Amazon Web Services is notable as they continue to capture more of the market.
Conclusion and Future Outlook
The Magnificent 7, once seen as the vanguard of technological innovation and market dominance, is at a crossroads. Tesla, Apple, and, to a lesser extent, Amazon and Google, long synonymous with high growth and disruption, now face more challenges. Tesla’s operational issues, Apple’s declining sales, Amazon’s lowered revenue guidance, and Google’s competitive pressures highlight these companies’ challenges.
The story is different for Microsoft, Nvidia, and Meta, which continue to show strong growth. Their strategic investments in AI, high-performance computing, and digital advertising position them at the forefront of technological advancement, sustaining their market leadership and promising significant returns.
While the era of the Magnificent 7 may be waning, the future still holds promise for select members of the group. As Dan Niles suggests in a CNBC interview, the group could be narrowed down to the Fantastic Four if we count Amazon or possibly Google back in [4].
[1] TradingView: https://www.tradingview.com/
[2] The Wall Street Journal: https://www.wsj.com/business/autos/tesla-is-pulling-back-from-ev-charging-and-people-are-freaking-out-ee8e490c
[3] United States Securities And Exchange Commission: https://www.sec.gov/
Disclaimer: The information contained in this publication does not constitute financial advice. This publication is for informational purposes only and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products’ value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. No responsibility is taken for the correctness of this information.
Maximize your investment IQ
Stay ahead with expert market insights and exclusive updates
Related Content
Securing Your Legacy: Strategic Inheritance Planning for Wealth Preservation
Understanding what constitutes a large inheritance is crucial to ensuring that wealth not only endures but also flourishes across generations.
Expert Tips for Choosing the Best Wealth Management Firm
High-net-worth individuals (HNWI) are challenged not only to accumulate wealth but also to preserve and grow it.
