While the Magnificent 7 stocks were seemingly all that anyone talked about last year, they have been pretty quiet in 2024. And yet, they still impact the performance of the S&P 500 even more so than they did last year.
According to a CNBC analysis, the group of stocks comprising the Magnificent 7 makes up nearly one-third of the index. That is because the S&P 500 is a market capitalization-weighted index. Since six out of the seven companies are valued at over $1 trillion, — and all seven are the seven biggest stocks on the market — even the slightest move up or down impacts the whole to a greater degree.
That means the Magnificent 7 stocks continue to influence what we think of as a broad market rally. In reality, it is still a handful of companies driving the index to record highs. Do they still deserve their valuations? In fact, are the following three Magnificent 7 stocks still as magnificent as they were?
Tesla (TSLA)
Electric vehicle maker Tesla (NASDAQ:TSLA) has been the weakest stock in the group. Shares are up less than 2% year to date, and for much of the year, were underwater. As the EV industry goes through a slowing sales period, Tesla is finding it harder to sell more cars.
Second-quarter sales fell 5% to 444,000 EVs, marking the second consecutive quarter of declining sales. It is the first time in the company’s history it has reported two straight quarters of lower sales. Despite cutting prices on its Model 3 and Model Y vehicles, the EV maker is having trouble moving cars.
Yet Tesla stock is up 82% from its April low, in large part because the EV maker beat Wall Street expectations. Analysts had forecast Tesla would sell just 439,000 cars. While beating the Street is an achievement, the fact remains it is still selling fewer cars. It just wasn’t the wreck analysts anticipated.
Interest rates are still high, concerns about sufficient charging infrastructure linger and the car buying public is more interested in hybrids than battery electric vehicles. That makes it difficult to justify its high valuation. With shares trading at 75 times next year’s earnings and 8 times sales, TSLA stock is overvalued and should be avoided.
Amazon (AMZN)
E-commerce giant Amazon (NASDAQ:AMZN) is in the middle of its annual Prime Day sales extravaganza. It will likely sell more products than ever before. Although Amazon never gives actual sales numbers, analysts estimate it could sell as much as $14 billion worth of goods over the two-day event. That would be a better than 10% rise over last year’s event.
Yet e-commerce is increasingly a smaller part of its business. Make no mistake, retail is still the largest part of its operations. Globally, it sold over $118 billion worth of merchandise in the first quarter. That’s good for more than 82% of total revenue. Yet even as recently as 2018, e-commerce accounted for nearly 93% of the total.
As is well known, the real growth center for Amazon is its cloud services business. Amazon Web Services (AWS) generated more than $25 billion in first-quarter revenue, up 17% year-over-year. In comparison, retail was up 11% from last year.
AWS is also Amazon’s profit center. It accounts for 61.5% of total operating income. Generative artificial intelligence in the data center market is going to keep driving AWS revenue and income higher. Hyperscaler remains the premier cloud services company even as more competition enters the market.
Amazon stock is pricey as well but analysts forecast long-term earnings growth of 30% a year. That suggests there is plenty of room and time for AMZN stock to grow into its valuation.
Apple (AAPL)
Wall Street continuously underestimates Apple (NASDAQ:AAPL). They keep writing off the tech giant as they expect its iPhone to hit its peak and decline. Like clockwork, though, Apple bounces back as strong as ever and it could happen again.
Apple is introducing OpenAi’s ChatGPT generative AI technology into the next iteration of the mobile device. It will also be found all across Apple’s products and operating systems. While there is the chance AI won’t be enough of an inflection point to spur new sales, analysts now believe we may be on the cusp of a new upgrade cycle.
AI, appearing in iPadOS18 and macOS Sequoia for its laptops and desktop computers, could also spur greater tablet, laptop and Mac sales, too. Apple is also producing its own AI data center chip, though it is for its own use rather than to sell to third parties.
As expected, Apple stock also goes for a princely sum. It trades at 32 times forward earnings, 9 times sales and 35x free cash flow. Analysts also expect it to maintain its 10% long-term earnings growth rate, meaning the stock is valued at 3x those forecasts.
Because it is the most valuable stock on the market, Apple has the most to lose. However, it looks to have a powerful enough lineup of products and services to warrant its premium, making me bullish about its future.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.