These days, the "Magnificent Seven" aren't exactly living up to their name and delivering magnificent performances. In fact, this group of tech giants that led market gains over the past two years is now leading declines. I'm talking about Alphabet (GOOG 0.87%) (GOOGL 0.75%), Apple (AAPL 0.96%), Amazon (AMZN 2.61%), Meta Platforms (META 2.33%), Microsoft (MSFT 0.43%), Nvidia (NVDA 2.94%), and Tesla (TSLA 2.07%).
The companies themselves haven't delivered terrible news specific to their businesses, but investors worry they will soon suffer as President Donald Trump's new import tariffs take hold. Last week, the president announced a broader-than-expected plan to tax imports from countries worldwide.
The problem ahead is twofold: U.S. companies, such as the Magnificent Seven, will face higher costs on the raw materials and finished goods they import. These companies may suffer as Americans facing higher prices at home rein in spending, especially on anything considered discretionary. All this has weighed heavily on the Magnificent Seven, with their declines this year now spanning 13% in the case of Meta to 40% in the case of Tesla.
Considering this, do these stalwarts still represent a prudent long-term investment? Let's find out.
Image source: Getty Images.
Trump's "Liberation Day"
First, here's a quick summary of the tariff situation. Trump proclaimed April 2 "Liberation Day," suggesting that his tariff announcements represented economic freedom for the U.S. In early March, Trump initially spoke of tariffs on imports from Canada, China, and Mexico, then said he would announce the complete plan a month later.
The April 2 announcement surprised investors as it came in broader than expected, with a baseline tariff of 10% on all imports into the country and tariffs of more than 20% and 30% on many countries, from Japan to Taiwan. Growth stocks, which generally thrive in strong economic environments and falter in poor ones, led declines in the trading sessions following the announcement, and the Nasdaq entered a bear market on Friday, with a drop of more than 20% from its most recent high.
Now, let's consider the Magnificent Seven, a group of high-growth, profitable companies involved in various areas of technology, from artificial intelligence (AI) and cloud computing to electric vehicles and software. These stocks are being hit particularly hard at the moment for two reasons. First, they're all growth players and, as mentioned, rely on economic strength to boost their businesses and sales figures. Recent economist comments that the import tariffs could lead to a recession aren't good news for such companies.
Nvidia's chip imports
Second, the Magnificent Seven players each rely in varying degrees on imports from other countries. This means that with the new import taxes, their costs will increase. For example, Nvidia produces most of its chips in Taiwan, a country that now faces a 32% tariff. It's important to remember that the importer of the goods -- in this case, Nvidia -- is responsible for paying the tariff.
NASDAQ: NVDA
Key Data Points
All this means that moving forward, Magnificent Seven players will likely experience pressure on earnings. But here's where I might surprise you: I'm not going to tell you to sell or stay away from these players.
Though they may face some headwinds in the months or even quarters to come, they remain fantastic long-term holdings. These are well-established companies with leadership positions in their industries and strong growth track records -- and, importantly, Trump's tariffs don't alter their long-term growth prospects. For example, the tariffs won't halt the potential AI revolution. Analysts expect the AI market to top $1 trillion a few years down the road, and each Magnificent Seven player is well positioned to benefit.
Experience dealing with headwinds
Meanwhile, the near-term situation may not be as difficult as we imagine. These companies have experience dealing with headwinds, like inflation, for example, and could find ways to minimize the impact of the tariffs, such as by cutting costs elsewhere. It's also possible that negotiations will take place between the U.S. and other countries.
Finally, it's important to note that each Magnificent Seven player's valuation has come down considerably in recent weeks, offering investors access to solid tech players for bargain prices.
AAPL PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
As the chart above shows, Alphabet and Meta Platforms look dirt cheap at less than 20 times forward earnings estimates, and AI giant Nvidia trades for just 20 times.
This means that now is an excellent time for investors to get in on these tech giants. Even if they don't rebound and advance immediately, that's fine. As a long-term investor, plan on holding these players for at least five years, a period that offers them time to manage the current headwinds and use the strengths they've established over many years to continue growing.
So, even if the Magnificent Seven aren't looking magnificent now, they likely will be down the road, making them a prudent long-term investment.
