Key Points
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One of these companies’ businesses is struggling with the weight of its sheer size.
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Another boasts an enormous backlog of future business, but serious questions surround that future revenue.
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The third drop-out’s stock is underperforming because the company’s lost a competitive edge on one front, while its most-touted opportunity’s potential is questionable.
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Given that it’s already seemingly so worn-out, it’s difficult to believe the term was only coined three years ago. But that is indeed the case. It was only in 2023 that Bank of America analyst Michael Hartnett first referred to Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), and Tesla (NASDAQ: TSLA) as the “Magnificent Seven,” based on their market-leading performances coming out of the COVID-19 pandemic. It’s, of course, a nod back to the 1960 film (and 2016’s remake) of the same name.
As the old adage goes, though, nothing lasts forever. While all seven of these stocks certainly still have bullish potential, I think only four of them still truly deserve to be called “magnificent.” The other three? Not so much. Here’s why.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Not so magnificent anymore
Don’t misread the message. Again, these aren’t necessarily stocks I think you need to make a point of avoiding. They may even perform brilliantly again at some point in their foreseeable future.
The conditions and situations that were driving them higher just a few years ago, however (namely the advent of artificial intelligence and the stimulus-driven recovery from the pandemic slump), just aren’t in place now to the degree they were then. Here’s what happened.
1. Amazon
While miserable for most other businesses, the coronavirus pandemic was a perfect bullish storm for e-commerce giant Amazon. Not only was its online shopping platform already well established with proven capacity, but by the time ChatGPT’s November 2022 launch set off an artificial intelligence arms race, Amazon’s long-established — and market-leading — cloud computing business, Amazon Web Services, was also ready to meet exploding demand for remote machine-learning platforms.
Image source: Getty Images.
Nothing draws out competition like opportunity, though, and the advent of AI is no exception. While Amazon Web Services is still the world’s leading cloud computing platform service provider at 28% (according to Synergy Research Group), it’s been steadily losing market share to Alphabet and Microsoft since 2022’s 34% peak. While the cloud market itself is still growing briskly enough to support Amazon’s second-quarter cloud growth rate of 37%, the fact that it’s underperforming its top rivals suggests this business is vulnerable if and when the global artificial intelligence industry finally runs into a headwind.
Meanwhile, Amazon’s Q2 product sales growth of nearly 14% is impressive, but also a clear slowdown from recent growth rates. If only due to the sheer difficulty of adding to its already enormous size — numbers from Statista indicate it already handles 40% of online shopping in the United States — the company’s e-commerce arm’s highest-growth phase is almost certainly in the rearview mirror.
The fact that the market already sees and is pricing in this concern speaks volumes about Amazon’s waning magnificence, too. Specifically, AMZN shares have lagged the S&P 500 (SNPINDEX: ^GSPC) for the past year, as well as for the past five years.
Take the hint.
2. Microsoft
Software giant Microsoft was already in a bit of trouble before now. Although, like most other technology stocks at the time, it rallied during the wind-down of the pandemic, it’s been hit-and-miss since 2024. Not only is the company’s flagship Windows operating system still losing out to consumers’ abandonment of personal computers in favor of smaller mobile devices, but data from Synergy Research Group indicates that the growth of Microsoft’s share of the global cloud computing market has stagnated at 20%.
It’s not all bad, to be clear. I’ll remind you that Microsoft reported a record-breaking quarterly revenue (now annualized at $100 billion) for the three months ending in June, mostly thanks to 43% year-over-year growth from its artificial intelligence business operating under the umbrella of its cloud computing platform, Azure. The company also issued AI-related guidance calling for growth of around 45% for the quarter ending this month. All of it has contributed to the stock’s bounce since late July.
Just recognize that the vast majority of this bullishness and the expected growth driving it is based on bold assumptions that its cloud computing backlog (remaining performance obligations) of $678 billion is rooted in artificial intelligence demand that may or may not come through as expected. It’s also rooted in the assumption that Microsoft will be able to meet these obligations profitably, which is anything but guaranteed, given the current price of memory chips, not to mention the rising cost of the electricity needed to power its data centers. Never even mind the fact that — according to numbers from Statcounter — Microsoft’s AI assistant, Copilot, is losing market share to ChatGPT and Google’s Gemini.
Connect the dots. Microsoft’s hold on many of its core profit centers is tenuous.
3. Tesla
Last but not least, having made no net progress since late 2021, I would argue that shares of electric vehicle maker Tesla are no longer deserving of their spot on the Magnificent Seven’s roster.
It’s probably one of the market’s more surprising major stumbles of late. Not only did Tesla prove that the EV business it would end up leading for a while could be profitable, but, coming out of the COVID-19 pandemic, it also appeared that electric vehicles would become mainstream. As of 2023, the International Energy Agency was predicting that 35% of worldwide automobile sales would be electric vehicles by 2030, and that number has edged a bit higher in the meantime.
As it turns out, however, it’s not a business that Tesla is going to dominate after all. Although it’s still leading the lackluster U.S. electric vehicle market, overseas, it’s been lapped by China’s BYD, which delivered 557,090 battery-electric vehicles in Q2 versus Tesla’s 480,126. BYD is doing particularly well in Europe, too, where neither company has a home-field advantage. Indeed, every car that BYD currently sells in Europe is manufactured in China, and shipped using one of its eight owned car-carrying, ocean-faring boats (with 10 more on the way). It’s an important perspective simply because much of TSLA stock’s premium valuation has hinged on the company’s continued dominance of the electric vehicle market.
But Tesla’s moving into the AI-empowered humanoid robotics space, which CEO and founder Elon Musk says could be the “biggest product of all time.”
It’s an interesting direction to be sure. Just don’t lose perspective on the opportunity, or forget that Musk has something of a penchant for overstating the scope of opportunities, or how quickly Tesla can turn them into tangible revenue. An outlook from Barclays suggests the humanoid robot market is only going to be worth about $200 billion by 2035, and even Musk himself concedes that China’s working on lots of compelling competing alternatives.
With Tesla facing so much uncertainty now and for the foreseeable future, I understand why most investors are steering clear.
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Bank of America is an advertising partner of Motley Fool Money. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends BYD Company and Barclays Plc. The Motley Fool has a disclosure policy.
