Since this year began, the ageless Dow Jones Industrial Average, broad-based S&P 500, and growth stock-fueled Nasdaq Composite have powered to record-closing highs. While there have been patches of strength throughout the broader market, it's the "Magnificent Seven" stocks that have done the bulk of the heavy lifting.
The Magnificent Seven represent some of the largest and most-influential businesses in the country. Listed in descending order of market cap (as of the closing bell on March 5, 2024), the Magnificent Seven are comprised of:
- Microsoft (MSFT +2.11%)
- Apple (AAPL 0.85%)
- Nvidia (NVDA +4.30%)
- Amazon (AMZN +3.47%)
- Alphabet (GOOGL +1.71%)(GOOG +1.44%)
- Meta Platforms (META +2.48%)
- Tesla (TSLA +0.73%)
Image source: Getty Images.
The Magnificent Seven are industry-leading businesses with impressive moats
What makes the Magnificent Seven so special is their sustained competitive advantages.
- Microsoft's Azure is the world's rapidly growing No. 2 provider of cloud infrastructure services, while Windows remains the global leader among desktop operating systems.
- Apple has been a pioneer in smartphone innovation for more than a decade, and offers a share repurchase program that no other publicly traded company can match.
- Nvidia is the infrastructure foundation of the artificial intelligence (AI) movement. Its graphics processing units (GPUs) dominate in AI-accelerated data centers.
- Amazon's e-commerce marketplace accounted for nearly 38% of U.S. online retail sales in 2023. Meanwhile, Amazon Web Services (AWS) is the global No. 1 cloud infrastructure service platform.
- Alphabet's Google had a monopoly like 92% share of worldwide internet search in February. Alphabet also owns the world's second most-visited social site (YouTube), as well as the third-largest cloud infrastructure service (Google) behind AWS and Azure.
- Meta Platforms is the company behind Facebook, the most-visited social site globally. Including other popular social-media destinations (WhatsApp, Instagram, and Threads), Meta attracts nearly 4 billion monthly active users.
- Tesla is North America's leading electric-vehicle (EV) manufacturer and the only pure-play EV company that's currently profitable on a recurring basis. Tesla produced close to 1.85 million EVs last year.
Many of the Magnificent Seven stocks are also known for conducting stock splits -- Meta is the only Magnificent Seven component to have never split its shares.
NASDAQ: NVDA
Key Data Points
Forget Nvidia: Two other Magnificent Seven stocks are likeliest to split first
A "stock split" is a purely cosmetic event that allows a public company to alter its share price and outstanding share count while having no impact to its market cap or operating performance. The Magnificent Seven are known for conducting forward-stock splits, which are designed to make shares more affordable for retail investors who may not have access to fractional-share purchases with their broker.
Since the midpoint of 2021, quite a few of the Magnificent Seven have completed a forward-stock split, including:
- Nvidia: 4-for-1 stock split.
- Amazon: 20-for-1 stock split.
- Alphabet: 20-for-1 stock split.
- Tesla: 3-for-1 stock split.
Given that a single Nvidia share is setting investors back by almost $860, as of the closing bell on March 5, you'd probably think it's a slam-dunk to become Wall Street's next stock-split stock. However, Nvidia is set to face an ever-growing mountain of headwinds this year, and there's a real possibility the company's stock is an epic bubble. In other words, a split may not be in the cards anytime soon.
For example, even though Nvidia's A100 and H100 GPUs are dominating in high-compute data centers for the moment, competition is picking up in a big way. Advanced Micro Devices has begun its ramped rollout of the MI300X AI-GPU, while Intel anticipates launching its Gaudi3 AI chip later this year.
What's far more concerning is that four Magnificent Seven members -- Microsoft, Meta Platforms, Amazon, and Alphabet -- account for about 40% of Nvidia's sales, yet they're all developing their own high-powered AI chips. It's plainly evident that Nvidia's top customers are looking to lessen their reliance on GPUs from the current kingpin of AI.
Add in regulatory export concerns to China, a lack of insider buying, and the possibility of cannibalizing its own margins as its ramps A100 and H100 production, and there's potential for significant downside in Nvidia stock.
Instead of Nvidia becoming Wall Street's next stock-split stock, two other Magnificent Seven components appear poised to beat it to the punch.
Image source: Getty Images.
Meta Platforms
The first Magnificent Seven member I'd expect to split its stock before Nvidia is social media titan Meta Platforms. Shares of the company topped $500 for the first time ever on March 1.
Although Meta has artificial intelligence tie-ins -- e.g., it's using generative AI solutions to help advertisers tailor their messages to individual users -- it wouldn't be susceptible to a bubble-bursting event if demand for AI infrastructure didn't meet investors' lofty expectations. This makes it more likely that Meta can sustain, if not build on, its nearly $500 share price.
The company's social media "real estate" is what makes it tick. Facebook, WhatsApp, Instagram, and Facebook Messenger are consistently among the most-downloaded social apps worldwide. Businesses are aware that no social media company offers a greater reach than what Meta can bring to the table. As a result, Meta's ad-pricing power is exceptional in most economic climates.
As I've pointed out previously, Meta is sitting on an ever-growing treasure chest of cash. It closed out last year with $65.4 billion in cash, cash equivalents, and marketable securities, and generated more than $71 billion in net cash from its operating activities in 2023.
NASDAQ: META
Key Data Points
What all this cash does is allow CEO Mark Zuckerberg to take chances. Despite hefty operating losses from Meta's Reality Labs segment, Zuckerberg is attempting to position Meta to be an on-ramp to the metaverse in the latter-half of this decade. Few other companies have the luxury of taking chances the way Meta can.
And unlike Nvidia, Meta remains historically inexpensive, even after its significant run-up from its 2022 bear market lows. Shares can be purchased right now for 13 times estimated cash flow in 2025, which represents a substantial discount to Meta's multiple to its cash flow over the trailing decade.
Microsoft
The other Magnificent Seven constituent that appears poised to become Wall Street's next stock-split stock before Nvidia is none other than tech giant Microsoft. Microsoft has split its shares nine times since going public, but last did so in February 2003. A single share of Microsoft is currently tipping the scales at north of $400.
Microsoft didn't reach a $3 trillion valuation and become the largest publicly traded by accident. It's achieved this distinction by seamlessly blending its legacy cash-cow segments with its fast-paced growth initiatives.
NASDAQ: MSFT
Key Data Points
As I pointed out earlier, Microsoft's legacy operations are still exceptionally profitable. Even though Windows has lost desktop operating system (OS) share over the past decade, it remains the undisputed OS leader in personal computing. The cash flow Microsoft generates from the likes of Windows and Office allows it to reinvest in high-growth initiatives and/or make acquisitions.
In terms of "high-growth initiatives," cloud services and AI take the cake. On a currency-neutral basis, sales for Azure catapulted 28% higher during the fiscal second quarter, ended December 31. Enterprise cloud spending is still in its relative early innings, which suggests Azure can continue to capture global cloud infrastructure service spend share, as well as sustain a double-digit growth rate with ease.
Microsoft's AI ambitions are also on display. It's invested billions into OpenAI, the company behind popular chatbot ChatGPT, incorporated AI solutions into search engine Bing, and plans to lean on various generative AI solutions to assist businesses with document processing and conversational AI on the Azure platform.
Lastly, Microsoft is one of only two publicly traded companies that sports the highest possible credit rating (AAA) from Standard & Poor's, a division of S&P Global. Even if the AI bubble were to burst, Microsoft's legacy operations and cloud services wouldn't miss a beat.
