Summary
The Magnificent Seven have posted strong gains in recent years but are showing signs of exhaustion in 2025, as investors appear eager to rotate out of these names. Valuations are also somewhat stretched. Nevertheless, these companies remain highly profitable and fundamentally robust. While the group may not replicate its past outperformance, strong earnings and solid fundamentals are likely to continue supporting it toward new highs.
GOOGL
What's remarkable about Alphabet's new all-time high today is that it came on a down day for the broadly market and in the context of tech rally losing steam in recent trading. The question now is: how much further can the Magnificent Seven still run?
A Long Way to Here
Over the past five years, the Magnificent Seven have driven much of the S&P 500’s returns and swings, often delivering moves roughly twice that of the index in both directions. In 2025, however, their performance has been more subdued, though they still account for 39% of the index’s overall return.
Supportive Earnings and Fundamentals
2025 Earnings
Robust earnings growth has fueled the Magnificent Seven over the past five years. In 2025, the remaining 493 companies in the S&P 500 are expected to catch up with solid earnings growth of their own. However, as the year unfolds, the gap between the two groups remains wide, with the Magnificent Seven projected to grow earnings by 20% for the full year, compared with 8% for the rest of the index.
2026 Earnings
Estimating earnings far in advance is always difficult, and the optimistic 2026 forecasts for the S&P 493 may not materialize. Since the start of 2025, analysts have raised 2026 EPS estimates for the Magnificent Seven by +1%, while trimming estimates for the S&P 493 by -4%.
Profit Margins
Net profit margins for the Magnificent Seven are more than double those of the S&P 493 and significantly better than those of small- and mid-cap stocks. Higher margins provide a cushion, allowing these companies to navigate economic downturns far more effectively than lower-margin companies.
CapEx
Since the end of Q2, the Magnificent Seven have seen significant upward revisions to their already sky-high capex spending - a sign of financial strength and potential future growth. In fact, GOOGL rose today on news that Apple has opened talks to use Google's Gemini models to power a revamped Siri.
Rating Upgrades
Our proprietary ratings have picked up the strength in fundamentals. Earlier this year, ratings were mediocre. As of last month, three of the Magnificent Seven were rated Buy, three Neutral, and one Sell. This month, however, we saw the first notable improvement for the group, with six rated Buy and only one Neutral.
Valuations Are Somewhat Stretched
Some more so than others. For comparison, S&P 500 growth stocks as a whole have a forward P/E of 28, so most of the Magnificent Seven are not drastically out of line. The key question is: can they grow into their multiples?
Not Everyone Is the Same
It's worth noting that not all Magnificent Seven stocks are born equal. They operate in different businesses and face distinct challenges. While as a group they've been leading the market, the dispersion within the group is much wider than one might expect.
We’ll never know which of the Magnificent Seven will roll over first. Remember the FAANG stocks? Some might wish they had never swapped NFLX for TSLA!
