Magnificent Seven Largest Stocks in the Nasdaq
The seven largest stocks in the Nasdaq comprise over half of its market capitalization and have a disproportional impact on the index. As such, these mega-cap tech companies have been a major driver of the index’s performance so far in 2023.
The name “Magnificent Seven” stems from the 1960 Western film starring Yul Brynner and Steve McQueen, and it has since been used to describe a group of powerful stocks that have an outsized effect on the performance of major stock indexes. Today, investors use the term to refer to a set of high-performing and influential tech companies: Alphabet GOOGL, Apple AAPL, Amazon AMZN, Meta Platforms META, Nvidia NVDA, Microsoft MSFT, and Tesla TSLA.
These companies dominate a wide variety of industries and are advancing technologies that are changing the way we live and work. They have become colossi in their sectors, and their stock prices are a proxy for investors’ views on the future of these industries.
What Are the Magnificent Seven Largest Stocks in the Nasdaq?
This year, they have led the S&P 500 and helped propel other Nasdaq-based indexes such as the Technology Select Sector SPDR ETF (XLK). Despite recent volatility in the market and fears of a recession, the Magnificent 7 have been resilient and continue to deliver strong earnings and growth.
But even though these stocks have been outperforming the S&P 500, their lead is likely to fade as more market events unfold. In the near term, the debt ceiling battle and Fed rate hikes could trigger a risk-off move that would eat into the gains of these high-flyers. And in the long term, they’re vulnerable to a recession, which could reduce corporate profit margins and their ability to generate cash flow.
Nasdaq, a globally renowned electronic marketplace, stands as a symbol of innovation and technological prowess in the financial world. Originally an acronym for the National Association of Securities Dealers Automated Quotations, Nasdaq has evolved far beyond its origins to become a cornerstone of modern financial markets.
Founded in 1971 by the National Association of Securities Dealers (NASD), Nasdaq was the world’s first electronic stock market, introducing revolutionary trading technology that departed from the traditional floor-based exchanges like the New York Stock Exchange (NYSE). This groundbreaking approach allowed for faster trade executions, increased transparency, and lower transaction costs, setting the stage for the digital transformation of financial markets.
What’s more, the seven stocks in the Magnificent Seven still look expensive relative to their peers. Microsoft, for example, has posted strong earnings and returns, but shares trade at a P/E ratio of over 37 compared to the 25 P/E of the Nasdaq 100 technology sector index. In addition, the stock has been plagued with controversy over its artificial intelligence efforts and is facing stiff competition from Nvidia in the field of GPU-powered AI.
The other Magnificent 7 stocks have their own challenges as well. Nvidia’s share price has surged, but the company is still losing money and generating a negative cash flow. And while Alphabet and Tesla are poised for growth, they have both experienced slowdowns in the past.