The market's massive rally to close out 2023 was without a doubt driven mostly by the “Magnificent Seven” stocks. These mega-cap tech giants consisting of Alphabet (GOOG , GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) powered the Nasdaq Composite which soared 44% in 2023.
However, the fact that these seven stocks contributed so significantly to the market’s rally in one calendar year caused some discomfort. The lack of broader index participation raised questions as to whether this is truly a new bull market, particularly amid growing confidence in the economic outlook. But in terms of the Magnificent Seven, this type of skepticism has caused many investors to missed the rally in 2023.
It's a reasonable question. These stocks contributed some 60% of last year's 24% total return for the S&P 500. Tesla doubled in value, gaining 105%, while Meta enjoyed a remarkable return of 193%. And to say nothing about last year’s AI darlings Microsoft and Nvidia. In 2023 Nvidia produced a breathtaking return of 243%. Investors will want to know if both Nvidia and Microsoft can continue driving the AI-related resurgence the market has enjoyed over the past year.
For Microsoft, the stock has already has already gone on an impressive run over the past year, surging some 65%, more than tripling the 20% rise in the S&P 500 index during that span. This includes gains of 17% and 5% in six months and one month, respectively, which also outperform the S&P 500 index in both spans.
As of the most-recent closing share price of $388.47, the Satya Nadella-led company now has a market cap of $2.89 trillion, which is just enough to surpass Apple's $2.87 trillion market cap for the title as the world's most-valuable company. Investors have fallen in love with Microsoft for many reasons, chief among them is the company's advances in generative artificial intelligence, which began in late 2022 with it’s $10 billion investment in OpenAI’s ChatGPT, giving Microsoft 33% ownership of the company.
Microsoft’s ownership stake in OpenAI, which is valued at $86 billion, has since risen to 49% after an additional $3 billion purchase. Microsoft has begun to monetize AI, and has since launched Copilot, which leverages AI to enhance its productivity software suite which is priced at $30 per month, with some analysts estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion.
Similarly, Google recently launched Gemini, its latest large language model. Gemini will include a suite of three different sizes. There is Gemini Ultra, the company's largest, most capable category, and Gemini Pro, which scales across a wide range of tasks. Google plans to license Gemini to its customers through the Google Cloud platform so customers can leverage them in their own applications.
The generative AI market is currently growing at 42% and could hit $1.3 trillion by 2032, according to Bloomberg Intelligence estimates. How much of that market can both Google or Microsoft capture? Meanwhile, Amazon, which saw its stock surge 81% in 2023, expects that generative AI will produce tens of billions in revenue for Amazon Web Services in the next few years. Amazon expects to be a dominant player in the market.
For Meta, given the strong momentum the stock has been on, investors want to know how much better can things get. Its management has pushed all of the right buttons, including various cost optimization initiatives, many of which enabled Meta to lower its 2023 expense guidance on two occasions this year. These initiatives not only puts the company in a much stronger financial standing in the near term, it is poised to improve in the long term as cost efficiencies are further realized.
Can the Magnificent Seven manage a repeat performance in 2024? That will begin to be revealed when the seven tech giants report earnings for the just-ended holiday quarter. The market will be watching whether these tech powerhouses have earned their valuations, and can march higher once the rate cut cycle begins. Armed with tons of cash on their balance sheets, strong cash flows, and excellent leadership, the Magnificent Seven are well-positioned to continue leading their respective markets in 2024.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
Read Richard's Bio