U.S. investment bank Goldman Sachs (GS) says investors may want to sell the Magnificent Seven stocks after none of them delivered a positive earnings surprise this reporting season.
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David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, writes, “This marks the first quarter with no positive sales surprises for the [Magnificent Seven] since 2022.” He therefore advises that investors begin shifting capital to other technology companies, specifically those involved in artificial intelligence (AI).
In a note to clients, Kostin says the mega-cap technology stocks that include Microsoft (MSFT) and Apple (AAPL) can be expected to decline this year, noting that “2025 bottom-up estimates imply the excess earnings growth of the Magnificent 7 will narrow from 32 percentage points in 2024 to 6 percentage points in 2025.”
To be fair, Nvidia (NVDA) has still not yet reported its financial results for the fourth and final quarter of 2024. That highly anticipated print is due on Feb. 26.
Other Options
So where should investors look beyond the Magnificent Seven stocks for investment opportunities? Kostin suggests allocating capital into what he calls “AI Phase 3” companies. These are companies that have the potential to monetize AI through generating incremental revenues, mostly in software and information technology (IT) services.
AI Phase 2 companies are ones involved in microchip development, cloud services, security software, data-center investments, and hardware. In other words, the Magnificent Seven. AI stocks outside the Magnificent Seven that Kostin likes include Datadog (DDOG), MongoDB (MDB), and Snowflake (SNOW).
If investors insist on sticking with the Magnificent Seven mega-cap stocks, Goldman Sachs likes Microsoft (MSFT) and its position related to the AI buildout.
GS stock is up 69% over the last 12 months.
Is GS Stock a Buy?
The stock of Goldman Sachs has a consensus Strong Buy rating among 16 Wall Street analysts. That rating is based on 12 Buy and four Hold recommendations assigned in the last three months. The average GS price target of $669.87 implies 3.53% upside from current levels.
