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The ‘Magnificent Seven’ is the informal name given to a collection of high-performing US stocks which, due to their size, have huge influence on the market as a whole.
While the companies in this grouping have a strong focus on technology, their activities run the gamut from e-commerce to electric vehicles.
Here’s a look at how to invest in the Magnificent Seven (M7), and the risks to consider.
Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
Who are the Magnificent Seven?
The term Magnificent Seven – which references a Hollywood Western – was coined in 2023 by Bank of New York analyst Michael Hartnett. The list comprises:
- Alphabet
- Amazon
- Apple
- Meta Platforms
- Microsoft
- NVIDIA
- Tesla
The M7 is often referred to as a group of big tech stocks, but this belies their diversity.
Jason Hollands, managing director at Bestinvest, says: “Tesla is an auto-manufacturer and Amazon is an online retailer, which both sit in the consumer discretionary space; Meta and Alphabet sit in the communication services sector.”
According to analysis by Morgan Stanley, these seven stocks accounted for more than 30% of the S&P 500 index’s market capitalisation as of March 2024.
The M7 members in detail
Alphabet
Alphabet, the parent company of Google, is a multinational technology firm with a focus on search engine technology, online advertising, cloud computing, software, e-commerce, consumer electronics and, in recent years, artificial intelligence.
Along with its flagship search engine, the company is responsible for tools and platforms such as Gmail, Maps, Android OS, Chrome, Ads and Google cloud. It acquired YouTube in 2009.
According to website analytics tool Statcounter, around 91% of web searches took place on Google in the year to July 2024.
Alphabet share price
The graph below displays the past performance of Alphabet. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
Amazon
Amazon is an ecommerce giant founded in 1994 as an online book shop.
While Amazon is primarily known for its shopping platform, the firm also sells consumer electronics including the Kindle e-reader, Fire tablet and Echo smart speaker. It also launched a proprietary streaming service, Amazon Prime, in 2006.
Amazon share price
The graph below displays the past performance of Amazon. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
Apple
Apple is a Silicon Valley tech giant responsible for the consumer goods including the iPhone, iPad, Macbook and Apple Watch.
The company designs and manufactures these personal tech items, along with software such as Apple Store, Apple Music and its iOS operating system.
At time of writing, Apple is the world’s largest company by market capitalisation (the total value of shares in circulation).
Apple share price
The graph below displays the past performance of Amazon. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
Meta Platforms
Meta is the tech giant behind social media platforms Facebook, Instagram and Threads, along with the popular messaging service, WhatsApp.
Under its Reality Labs (RL) business, the firm also develops augmented and virtual-reality hardware, software and content. Most notable is the ‘metaverse’ – a virtual reality space where individuals and businesses can interact.
Meta share price
The graph below displays the past performance of Meta Platforms. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
Microsoft
Another tech giant in the M7 grouping is Microsoft Corporation.
Best known for its Windows operating system and other software, the company also designs and manufactures the Xbox games console, and offers cloud computing services.
Microsoft share price
The graph below displays the past performance of Microsoft Corporation. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
NVIDIA
NVIDIA is a California-based tech firm that has specialised in graphics processing units (GPUs) for computers since 1999.
These components play a key role in gaming and general computer graphics, but more recently have become indispensable when it comes to artificial intelligence (AI) applications.
NVIDIA share price
The graph below displays the past performance of NVIDIA. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
Tesla
Electric vehicle (EV) producer, Tesla, was founded in 2003. It designs and manufactures electric vehicles, EV charging infrastructure and solar electricity systems.
Tesla share price
The graph below displays the past performance of Tesla. Past performance is not a reliable indicator of future results.
Investments in a currency other than sterling, are exposed to currency exchange risk. Currency exchange rates are constantly changing which may therefore affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin.
Why consider investing in the M7?
The M7 companies have delivered consistently strong growth in recent years, making them an appealing option for many investors.
Rachel Winter of Killik & Co says: “Many of these companies counted continue to offer fantastic growth potential, with NVIDIA expected to double its level of revenue between 2024 and 2025. Meta stands to benefit from the US government’s crackdown on TikTok, and Amazon’s profit margins are expanding thanks to its current focus on cutting costs.”
This strong performance is explained in large part by the growing demand for AI technology.
Each of the M7 is involved in the AI space, whether producing essential components (NVIDIA), developing large language models (Meta), or proving the infrastructure to deploy AI software (Amazon Web Services).
Dan Coatsworth, investment analyst at AJ Bell, says: “Strong demand across multiple industries to deploy AI has created a new tailwind for the tech sector, particularly companies involved in the equipment or infrastructure needed to process or store large amounts of information.
“These so-called ‘AI-enablers’ have enjoyed a burst of speed that has placed them at the front of the race.”
If the AI sector continues to grow, the M7 are well-placed to benefit.
Potential risks and drawbacks
Despite their strong performance, the M7 are not immune from volatility.
Winter at Killik & Co, says: “The Seven have exhibited much higher levels of volatility than the average constituent of the S&P 500, and investing in them is therefore not for the fainthearted.”
According to AJ Bell figures, their combined value slumped 15% between July and August 2024, for instance.
Despite being grouped together, it’s important to bear in mind that performance can vary significantly between individual M7 stocks. Microsoft’s share price has risen 10.1% since the beginning of 2024 (as of 2 August), while Tesla shares price fell by 16.4% in the same period.
Equally, there is no guarantee the AI gold-rush that has fuelled the M7’s recent growth will continue indefinitely.
Coatsworth of AJ Bell says: “There is a fear that companies might take their foot off the pedal in terms of AI investments if there is more focus on the financial returns, meaning the AI enablers like NVIDIA and Microsoft might lose the tailwind that has sent them to the moon in recent years.”
Jason Hollands of Bestinvest adds: “The investment world has a habit of coining acronyms for groups of fashionable stocks, of which the Magnificent Seven is simply the latest creation.
“These acronyms rarely endure, as names change and some previously fashionable companies fall out of favour, or others emerge.”
How to invest in the Magnificent Seven
Investors looking for exposure to the M7 companies have a few different investing routes to choose from.
Bear in mind that none of these options come with any guarantees, and past performance is not an indicator of future returns.
Individual shares
One way to invest in the M7 is to buy shares in the individual companies.
Each member of the group is publicly listed, and shares can be bought, held and sold through an investing platform.
One potential drawback of this approach is that M7 shares are typically very expensive, which could pose a barrier to many investors.
However, some platforms allow investors to buy ‘fractional shares’ – a smaller portion of a whole share – which could make them more accessible.
Before you buy US shares as a UK-based investor, you’ll also need to complete a W-8BEN form. This document entitles UK investors to a discount on the US tax they pay on any dividends their investments earn.
Most investing platforms prompt customers to complete the form automatically when they purchase their first US equity.
Concentrating your holdings in a handful of shares is a risky strategy, which isn’t generally recommended.
Winter at Killik & Co says: “Individual members of the Seven should be selected on a case by case basis and included within a diversified portfolio.”
ETFs and tracker funds
If you want to gain exposure to the M7 without purchasing individual shares, investing in an exchange-traded fund (ETF) is an alternative worth considering.
These passively managed funds (run by a computer algorithm based on pre-set rules rather than an active human manager) invest in a collection of assets in a given stock market index, industry or geography.
The MAGS Magnificent Seven ETF, for instance, offers investors exposure to all M7 companies, with holdings equally weighted between the seven.
Because the M7 accounts for such a large portion of major US indices, you can often gain exposure by investing in an index tracker fund.
These funds are designed to mirror the performance of a specific stock market index, by investing in some or all of its underlying assets.
The iShares Core S&P 500 ETF, for example, invests in the companies that comprise the S&P 500 index – an index that tracks 500 of the largest US companies by market capitalisation and includes all of the M7.
Another option is to invest in an ETFs with a focus on big tech.
Vanguard’s Information Technology ETF has a focus on the information technology sector, and offers exposure to M7 companies such as Apple, Microsoft and NVIDIA.
Elsewhere, the Vanguard Consumer Discretionary ETF invests in a range of large-cap consumer goods companies, including Amazon and Tesla.