The Easiest Way to Remember the "Magnificent 7" Stocks -- And Why You Should Care

Those handy-dandy short lists of the most important stocks on the market are great. They don't last forever, though. The FAANG club is getting long in the tooth, so Wall Street came up with a new elite group. The Magnificent 7 rolls off the tongue, but the name doesn't hold many clues to the identity of the seven components.

So I'm here to straighten it out for you. I will forevermore think of the Magnificent 7 as the MAMA ANT stocks. The queen of Wall Street's stock hive even breaks down into two distinct groups, making it even easier to remember.

In a couple of minutes, you'll be able to rattle off the seven members in your sleep -- Microsoft (MSFT 1.82%), Amazon (AMZN 3.43%), Meta Platforms (META 0.43%), Alphabet (GOOG 9.96%) (GOOGL 10.22%), Apple (AAPL -0.35%), Nvidia (NVDA 6.18%), and Tesla (TSLA -1.11%).

Easy peasy. Let me show you what I mean.

The MAMA ANT mnemonic

So the Magnificent 7 list corresponds to the absolute top of the market right now, but that could change in a heartbeat. Bubbling right below the smallest of these giants, you'll find Warren Buffett's Berkshire Hathaway, financial services veteran Visa, and health insurance behemoth UnitedHealth Group. They all use AI tools, of course, but none look like direct beneficiaries of the AI surge, and I would never classify them as tech stocks. So you could memorize the top of the market cap list, but that list could go obsolete at the drop of a chatbot's hat.

So if you want to keep an eye on the Magnificent 7 in the long run, you'll be better off with a proper acronym. And that's where my MAMA ANT idea comes in.

It's a short, snappy phrase with two common English words. The queen of an ant colony is extremely important to the health of the whole community, and these seven stocks have a similar role in today's stock market. Best of all, the two words come with distinctly different groups of business plans.

The MAMA group focuses on software and services above all else, including the three largest cloud computing platforms:

• Microsoft (software and cloud computing)
• Amazon (e-commerce and cloud computing)
• Meta Platforms (social media)
• Alphabet (Google parent)

And the ANT list lives on the hardware side of the tracks:

• Apple (iPhones, iPads)
• Nvidia (semiconductors)
• Tesla (electric vehicles and solar power)

There you have it -- an easy-to-remember list of the most important AI stocks in the first half of 2023.

What's the big deal with these 7 stocks, anyway?

Bank of America analyst Michael Hartnett coined the "Magnificent 7" term two months ago. Though it may sound like a compliment, Hartnett warned investors that this group of seven heavyweights seem to spearhead a "baby bubble" that could pop soon. Most of the stocks on his list have scored big gains in 2023 for two main reasons: a stabilizing economy and the ongoing artificial intelligence (AI) boom.

So you shouldn't see the list as an outright recommendation to buy these massive stocks. However, the seven members most certainly deserve a generous serving of respect. These numbers tell the story:

Data source: Slickcharts.com on July 31, 2023.

These seven companies (and eight stocks due to Alphabet's dual-class ownership structure) have a combined market cap of $13.2 trillion. In the cap-weighted S&P 500, they account for 27.4% of the total index value. So when these elephants dance, the earth shakes on Wall Street.

At the end of 2022, the MAMA ANT stocks added up to a market value of $8 trillion. So this group has delivered an average return of 64% year to date, far outpacing the 19% return of the S&P 500 as a whole.

Today, these are the most valuable stocks on the market. They are also among this year's strongest market performers. Microsoft brings up the rear with a 41% year-to-date return. That's the 45th-highest gain among all S&P 500 stocks. At the top of the list, Nvidia has gained 221% over the same period.

They also share a close connection to the booming AI market. That's the train they rode to the top in 2023, and Hartnett doesn't like the intensely concentrated market risk this grouping brings to the most popular market index.

The analyst suggests that the AI market may be setting itself up for a painful correction when the skyrocketing surge runs out of steam. The dot-com bubble at the turn of the millennium springs to mind, and the tech-heavy Nasdaq Composite Index took 15 years to recover from the peak of that short-lived surge.

Hartnett's bearish argument makes sense to some degree. The AI bonanza is almost certainly pushing some stocks skyward with more enthusiasm than they deserve. Yes, AI tools will change the business world in a myriad different ways, but so did the internet 20 years ago and that game-changing market shift was still painful. Every AI stock won't be a winner, and there are probably a couple of weak long-term ideas on the MAMA ANT list.

So I don't know how long MAMA ANT will be helpful and relevant, but the queen ant should at least serve as a useful launching point for deeper research into the AI-based stock surge. It's a good idea to sort the long-term winners out from the overhyped wannabes.