Not since the market’s obsession with GameStop, the first of the “meme” stocks, have the fortunes of a single company—Nvidia (symbol NVDA)—so captivated investors. Except the stakes are much higher with Nvidia, the manufacturer whose semiconductor chips power the artificial intelligence revolution and whose stock is one of the mega-cap market movers known as the Magnificent Seven.
The Nvidia juggernaut rolled through the market again in February when the company reported blockbuster results for its fourth quarter, which ended in January. Revenue was up 265 percent compared with the same quarter a year earlier; earnings per share jumped 765 percent. The stock price rose 16 percent on the day after the report, pulling other chip makers up with it.
The Magnificent Seven (Nvidia plus Apple, Alphabet, Amazon.com, Meta Platforms, Microsoft and Tesla) accounted for the bulk of broad-market gains in 2023, using the S&P 500 index as a benchmark. Even if you don’t own the individual stocks, you may well be invested in some of the Mag Seven, as they are top holdings in many growth-focused and S&P 500 index funds.
With far loftier profit-growth expectations than the rest of the market, the Magnificent Seven are “priced for forever perfection,” according to Savita Subramanian, head of U.S. equity and quantitative strategy at BofA. But just as yesterday’s memes are now memories, the Magnificent Seven’s extreme dominance of the market might be coming to an end. That doesn’t mean these innovators don’t have much to recommend them still, but opportunities elsewhere might finally have a chance to shine in the latter half of 2024.
If corporate earnings are truly the engine that drives the stock market, then by this fall, the rest of the market should begin to gain ground. BofA looked at earnings forecasts for the S&P 500 compared with those for the “S&P 493,” or the S&P 500 minus the Magnificent Seven. For the first quarter of 2024, compared with the same quarter in 2023, analysts forecast average profit growth of 37 percent for the Magnificent Seven, compared with a 1 percent decline for the rest of the S&P 500. But by the fourth quarter, the profit laggards should pull ahead, with analysts expecting 12 percent growth for the Mag Seven and 14 percent growth for the remainder of the S&P 500.
To broaden your portfolio, Subramanian suggests high-yielding dividend stocks, which are “unloved and cheap” but have good prospects, she believes.
