Wall Street’s once favorite Magnificent Seven stocks seem to be losing their spark this year, as investors grow wary of their expensive valuations and massive AI (artificial intelligence) investments. The Magnificent 7 stocks – Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOGL), Apple (AAPL), and Tesla (TSLA), are some of the most popular names on investors’ minds.
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These seven companies reported mixed results for the December quarter. Further, it appears that investors’ growth expectations for these companies have declined recently, which makes it difficult to justify their premium valuations. This could be one of the reasons why investors are pulling out of the Magnificent 7 stocks.
Investors Shy Away from the Magnificent 7 Stocks
The Magnificent Seven stocks experienced exorbitant gains in 2023 and 2024, pushing up the S&P 500 Index (SPX) by 24.2% and 23.31%, respectively. The boost in the stock prices of these tech giants was driven by the AI boom, with AI darling NVDA stock registering the maximum gain of 171%, followed by Meta’s 65% rise. However, this year has been different. The Magnificent 7 has gained a cumulative 14% year-to-date, while the SPX has risen 4.1% so far this year.
According to a report by the Financial Times, it’s not just retail or individual investors who are fretting over the growth prospects of the Magnificent 7. In fact, hedge funds and money managers are also moving their money into stocks in different sectors. According to the weekly stats published by Bank of America (BAC), citing EPFR Global Data, U.S. stocks witnessed $700 million worth of outflows in the week ending February 12.
This money is flowing to other investment avenues and markets. Some beneficiaries of this shifting trend include the healthcare sector, European equities, gold funds, investment-grade bonds, and even smaller tech companies.
Magnificent Seven Are Trading at Premium Valuations
We used TipRanks’ Stock Comparison Tool for Magnificent 7 Stocks to display how these stocks are performing. The table below shows how Microsoft, Alphabet, Apple, and Tesla have lost over 2% in value this year, with Tesla being the biggest loser.
Having said that, Facebook and Instagram parent Meta’s outperformance of a 22.9% gain has kept the Magnificent 7 in the positive territory this year. Interestingly, WhatsApp owner Meta is on a growth trajectory, riding a 20-day winning streak lately.
Investors’ concerns about the sky-high valuations of the Magnificent Seven stocks are not overdone. We can clearly see from the table above that all these seven stocks are currently trading at rich P/E (price-to-earnings per share) multiples. The P/E ratio reflects how the current price of the stock compares to the trailing 12-month EPS. A higher number denotes that the stock is expensive and vice-versa for a lower multiple. Although growth stocks tend to trade at high multiples, each of these stocks is trading higher than the sector average as of now.
For instance, the tech sector has a sector average P/E of 32.69x, while the auto sector has an average P/E of 20.04x. In comparison, TSLA stock is trading at a nearly 771% premium to the auto sector average.
The Rise of the Private Magnificent Seven
Ironically, the report reveals that investors are routing money big time into the private sector. A new group of AI and tech startups dubbed the “Private Magnificent Seven” are attracting investors’ attention. This group includes Microsoft-backed OpenAI, Amazon and Google-backed Anthropic, Perplexity AI, Elon Musk’s xAI, Coreweave, Databricks, and ScaleAI. The report noted that the cumulative valuation of this group surged by 40% between July 2024 and January 31, 2025, massively outpacing the performance of the publicly-trading counterpart.
Ending Thoughts
The year has just begun, and there could be several changes to macro or industry factors and investors’ mindsets, which could drastically change the view on the Magnificent 7 stocks. An initial downfall could eventually change into an overnight success story. For now, investors can wait and watch if these big tech stocks regain their shine and continue an upward growth trajectory.
