For the entirety of the two-plus-year bull market (from the October 2022 bottom through the end of 2024) the Magnificent 7 stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla) were up an average of 307%. Collectively, they accounted for roughly 30% of the market’s gains during that time.
But now, with the market somewhere between a steep correction and a bear market, they’ve been some of the biggest underperformers.
In fact, before the tariffs shouldered every other investing-related topic out of the headlines, those previously magnificent seven stocks managed to pick up a new (and distinctly unfavorable) moniker: “The Lag 7.”
Nickname aside, the most important question for investors these days is this: Have those seven stocks become something they haven’t been since that 2022 bottom – oversold?
According to Goldman Sachs strategist David Kostin, the Mag. 7 are the cheapest they’ve been relative to the rest of the S&P 500 since 2017. That’s despite average estimated earnings per share growth of 17.9% this year—more than double most estimates for the S&P as a whole. So, this is a rare chance to get some of the market’s fastest-growing mega-cap stocks at a discount.
Don’t expect a repeat of their 2023-2024 outperformance. It’s possible, even probable, that the greatest period of share price growth for all seven of the Mag. 7 is behind them. But that doesn’t mean they can’t be good investments going forward.
Chances are, if you bought any one of them today and held on for the next year, two years, five years, you would make money. But as investors, our goal isn’t simply to make money. It’s to outperform the market. So which of the Mag. 7 are most likely to outperform in the coming year?
3 Oversold Mag. 7 Stocks
I’d start with Nvidia (NVDA). It’s still the fastest-growing of the bunch by far, with 50% EPS growth and 56% revenue growth expected this year. Although, that does deserve a quick caveat. The company recently reported that they’ll be taking a sizable write-down due to trade-related developments preventing them from selling their H20 chips in China, so be sure to pay attention to their upcoming earnings report (end of May).
While artificial intelligence doesn’t have the same new-car smell it did a year or so ago, it’s still the biggest growth catalyst on Wall Street today. And there’s no bigger AI leader than Nvidia. With the stock roughly 32% off its January highs, I like the upside.
Microsoft (MSFT) is also an AI leader, thanks to ChatGPT, and just continuously churns out steady growth, with another 11.5% EPS growth and 13% revenue growth expected this year. MSFT isn’t the sexiest of the Mag. 7, and its greatest growth period is decades in the rear-view mirror, but no company does a better job of reinventing itself, finding new growth avenues, and producing solid returns over time. As the most historically reliable of the bunch, with a major catalyst at its tail, it’s the “safest” bet on the board.
Last up is Alphabet (GOOG). Put simply, it’s the cheapest of the bunch, trading at less than 18x earnings estimates yet with 11.7% EPS growth expected this year (and 11.4% revenue growth). And while the company has an AI slant with Google Services, Google Cloud and Google DeepMind, its versatility is its strength, with its signature search engine revenue and YouTube ads business growing at a healthy clip. While not growing the way it used to – both sales and earnings were roughly in line with analyst estimates in the fourth quarter – it’s less susceptible to weakness in any one area of the economy (unlike fellow Mag. 7 stock Tesla) should a slowdown be in the offing. Having taken a 26% haircut in the last 10 weeks – the early-February earnings report triggered some selling after failing to beat estimates – GOOG might have the most immediate potential for a swift bounce-back.
“Magnificent” no More?
First, these seven mega-cap tech stocks were deemed “Magnificent” for their incredible outperformance. Now, they’re being derided for how badly they’re lagging the rest of the market. As always, the truth about a stock typically lies somewhere between its two greatest extremes. So, while they may no longer be “magnificent,” I don’t expect these seven stocks to underperform the way they have so far this year. For long-term investors, most of them will remain strong performers and would make for good additions at their current, discounted entry points.
But if you’re looking for quicker returns in the next year, I think the three mentioned above have the best combination of fundamentals and technical setup.
