While the "Magnificent Seven" stocks may have had their moments in the sun in 2023, before that the dominant group was FAANG. These terms were created to highlight the tech stocks that were leading the market.
There is some overlap between the two groups, but also some differences. But which set should investors buy in 2024?
Only a few companies are different between the two
First, let's review the groups' components. The "Magnificent Seven" is:
- Meta Platforms (META 2.56%)
- Amazon (AMZN 0.91%)
- Apple (AAPL +1.04%)
- Alphabet (GOOG 1.19%) (GOOGL 1.26%)
- Microsoft (MSFT 1.15%)
- Nvidia (NVDA +0.19%)
- Tesla (TSLA 2.03%)
The FAANG concept came about in 2013, and a few of the companies in it have changed their names since then, but they are:
- Facebook (now known as Meta Platforms)
- Amazon
- Apple
- Netflix (NFLX 2.52%)
- Google (now known as Alphabet)
So, the differences between them are that the Magnificent Seven starts with FAANG, then adds Microsoft, Nvidia, and Tesla while dropping Netflix. So, this analysis really boils down to which of these stocks I'd rather own. And in doing that, there's one metric that stands out for me.
Netflix isn't the growth machine it used to be
First, let's start with the old-guard FAANG component. Netflix used to be one of the top growth stocks on Wall Street. If you had invested $10,000 into Netflix on Oct. 31, 2011, and held on until it peaked a decade later in 2021, your investment would have turned into nearly $590,000. But since that peak, it has been a poor performer, although it did have a nice recovery in 2023.
NASDAQ: NFLX
Key Data Points
The issue with Netflix is that it has practically captured its potential market. It has posted seven straight quarters of revenue growth under 10%. In its efforts to reinvigorate its growth, management has tried cracking down on password sharing and rolling out an ad-supported subscription tier. Those moves have been fairly successful, and management expects to report nearly 11% revenue growth for Q4. However, once Netflix laps these year-over-year comparisons, the growth effect will be gone.
That's not to say Netflix is a bad business. It just isn't going to grow at rates comparable to Microsoft, Nvidia, or Tesla.
Microsoft, Nvidia, and Tesla have more sustainable growth
The growth potential for the members of this trio is immense. Nvidia led the way in 2023, with demand for its GPUs powering artificial intelligence (AI) models to more than triple its revenue in its fiscal Q3 2024. While it remains to be seen how long this demand persists, its sustainability is likely greater than Netflix.
NASDAQ: NVDA
Key Data Points
Microsoft has grown in many places. Its cloud computing division, Azure, is excelling, fueled by the ramp-up of AI computing. Additionally, Microsoft is working with Open
AI (the developer of ChatGPT) to create an autopilot for many of its products, giving everyone who subscribes an AI assistant.
Finally, Tesla continues to lead the charge in electric vehicle production in the U.S. In 2023, Tesla's deliveries increased 38% to 1.81 million, placing it in the same class as Ford, which sold nearly 2 million vehicles in 2023.
These three companies have stronger growth prospects than Netflix, making the "Magnificent Seven" a no-brainer pick over the FAANG stocks.
