Apple, Tesla and Nvidia were amongst 2023’s ‘magnificent seven’ stocks – here’s what to anticipate from all of them in 2024

In the 1960 western The Magnificent Seven, a gaggle of seven gunfighters protect a village from bandits. Only three survive to ride out of town at the top of the movie. The odds look a lot better for the seven tech firms recently dubbed the magnificent seven after dominating US stock markets in 2023. But there are problems that would ambush a few of these firms in 2024.

Apple, Alphabet, Microsoft, Amazon, Meta, Tesla and Nvidia have driven a rally in US stocks in 2023. They now make up nearly a 3rd of the S&P 500 measure of the biggest listed US firms, which has risen greater than 20% since January. These tech stocks had provided shareholders with a whopping 71% return by mid-November while the opposite 493 names added just 6%.

This impressive performance led Bank of America analyst Michael Hartnett to call these firms the magnificent seven earlier this yr. Goldman Sachs soon followed, calling their massive outperformance the “defining feature” of the equity market in 2023.

But as dramatic as this performance has been – and although they’re all essentially tech firms – don’t make the error of considering they’re all the identical. In fact, the outlook for the magnificent seven next yr is mixed, particularly in light of expected changes of their core markets.

Rising competition within the EV market

Let’s start with the bad news first. Electric vehicle (EV) manufacturer Tesla Motors will proceed to lose market share in 2024. While chief executive Elon Musk has been coping with promoting problems on X (formerly Twitter), certainly one of his other businesses, over the primary three quarters of this yr, Tesla has seen its US market dominance shrink from 62% to only over 50% of the market. Both BMW Group and Mercedes-Benz Cars have expanded their footprints.

And over the following few years, the growing global heft of Chinese manufacturers looks hard to beat. Chinese EV players corresponding to BYD, Nio, Wuling and Xpeng produced almost 60% of the world’s EVs in 2022 – and so they have been doing so in a really reasonably priced manner. In the primary half of 2023, the typical cost of an EV in China was US$33,000 (£26,040), greater than half the US$70,700 (£55,800) people pay for EVs in Europe and the US$72,000 (£56,800) paid within the US.

US president Joe Biden has proposed strict latest automobile pollution controls that may require almost two-thirds of latest cars sold within the US to be electric by 2032. But the associated fee of EVs will need to come back down in the event that they are to attain mass market appeal.

Sunny outlook for cloud computing

Magnificent seven members Amazon, Microsoft and Alphabet make up two-thirds of the cloud computing market, which is able to proceed to grow in 2024, although perhaps not quite as much as previously.

Still, the marketplace for cloud infrastructure services is anticipated to expand from US$122 billion in 2023 to US$446 billion by 2032. In particular, concerns concerning the macroeconomic environment have seen some customers give attention to using the cloud more to cut back costs lately, although this has yet to have any meaningful impact on revenues.

And for Amazon particularly, there are some niggling questions around its outlook. Although its cloud business stays solid, its original e-commerce business has seen growing competition recently, notably from rival retail giant Walmart, which is eating into its business within the US.

This is one reason why holding Amazon shares provided an annual return over the past two years of -16.7%, as of early December, in keeping with my calculations.

Unstoppable AI

Also linked to the cloud computing industry, California-based chip maker Nvidia Corporation has been the runaway success of the magnificent seven this yr. This is all because of its dominance in processing AI workloads on the cloud. The majority of cloud players use Nvidia graphics processing units (GPUs).

But while its two-year return of 43.3% is probably the most impressive of the seven tech firms, there are competitors on the horizon that would nibble away at some market share.

Nvidia’s nearest rival AMD drew attention with its latest chip offering in 2023 – it’s betting the market might be value US$400 billion by 2027. Numerous other start-ups are also developing chips for area of interest AI fields.

Can Nvidia maintain its dominance? If it does, its earnings will skyrocket
alongside the expansion of AI. But even when it loses some market share, the AI market will boom for years.

The outliers

For those keeping track, that just leaves two final members of the magnificent seven.

Apple Inc – the world’s largest company by market capitalisation – consistently delivers solid returns: 16.2% over the past two years by my calculations. At the opposite end of the size, social media company Meta (owner of Facebook, Instagram, Threads and WhatsApp) is the one certainly one of the group to have shown an essentially flat stock market performance over the past two years.

Although Meta’s revenues and earnings have consistently beaten expectations this yr, the specter of anti-trust laws within the US and Europe hangs over the corporate, as does an promoting market that’s bottoming out. Both of those issues could harm Meta’s revenue outlook next yr.

So, the magnificent seven have all survived to ride out of town at the top of 2023, however it’s as clear as a tumbleweed rolling down a deserted most important street that not all of them are in for a leisurely horseback ride through 2024. Saddle up, partners!