2024 stock watch: The Magnificent 7's role In market performance

Key Points

• By the end of 2023, the Magnificent 7 tech stocks accounted for about 33% of S&P 500 market cap.
• Analysts see reasons that many of these stocks can build on that outperformance in 2024. 
• The breadth of the rally expanded in the fourth quarter, at least among chipmakers and other techs. 

By the end of 2023, the Magnificent 7 stocks, Apple Inc. NASDAQ: AAPL, Microsoft Corp. NASDAQ: MSFT, Alphabet Inc. NASDAQ: GOOGL, Amazon Inc. NASDAQ: AMZN, Nvidia Corp. NASDAQ: NVDA, Meta Platforms Inc. NASDAQ: META and Tesla Inc. NASDAQ: TSLA accounted for 33% of the S&P 500's market capitalization.

That's a pretty astonishing number for an index that's intended to represent a wide swath of the U.S. economy. 

But will that particular group of stocks continue to dominate in the new year? 

While every calendar year brings its own surprises and “I didn’t have that on my bingo card” moments, there are some differences between 2024 and the four previous years.

Pandemic-related economic disruptions finally normalizing

“After four years, 2024 is lining up to be the year that the economy and individual behavior have finally recovered and normalized. The massive disruptions caused by the pandemic and dislocations caused by those disruptions are behind us,” wrote Morningstar analyst David Sekara in a December 29 article, “2024 Market Outlook: What a ‘Return to Normal’ Means for Stocks.”

Sekara noted that he expects the rate of economic growth to slow “and stocks have already rallied and are nearing their highs,” but he still sees undervalued areas of the market.

There was already one clue toward the end of 2023 that other stocks were beginning to participate in the rally.

For example, tech stocks, including Advanced Micro Devices Inc. NASDAQ: AMD, CrowdStrike Holdings Inc. NASDAQ: CRWD and Broadcom Inc. NASDAQ: AVGO, posted strong uptrends in the fourth quarter, suggesting that market breadth, at least among techs, may be increasing.  

Here’s a snapshot of how the Magnificent 7 stocks are faring as the new year gets underway.

Apple

The iPhone maker racked up four quarters in a row of revenue declines, which has put a damper on the stock’s return. You can see those results on MarketBeat’s Apple earnings page. Sluggish smartphone and PC sales were the culprits. 

Analysts expect the company to pivot back to a sales increase, albeit small, for the quarter ended in December, which Apple reports on February 1. Upbeat guidance could spark further price moves.

Microsoft

The Microsoft chart shows the stock began pulling back in late November, ahead of the wider pullback in the Technology Select Sector SPDR Fund NYSEARCA: XLK.

Microsoft has been at the center of AI news recently due to its ownership stake in OpenAI. Microsoft had a strong run-up in 2023 due to excitement about its AI potential, and that’s not likely to dissipate despite the current pullback. Microsoft analyst forecasts show several recent upgrades, with Wedbush analyst Dan Ives writing, “We believe the stock still has yet to price in what we view as the next wave of cloud and AI growth.”

Amazon

Analysts see plenty of opportunity for Amazon to grow revenue in 2024. Those include growth in advertising on Prime Video and the Amazon Web Services cloud business. 

DA Davidson analyst Gil Luria boosted his price target on Amazon to $195, assigning the stock a “buy” rating. 

“We believe a potential re-acceleration of growth in Amazon Web Services could drive upside to shares in 2024, as AMZN gets some of the Generative Artificial Intelligence boosts already in MSFT, GOOGL and META shares,” he wrote in his research note.

Alphabet

Analysts expect Alphabet, more commonly known as Google, to post earnings growth of 22% when it reports 2023 on February 1. Earnings are forecast to rise by another 17% this year. 

While some analysts and investors fretted about slow growth in the company’s cloud business, that unit still increased revenue by 22% in the third quarter. 

One thing to watch for: It’s possible the company, whose market capitalization is $1.74 trillion, may consider a dividend or share buyback, as it is flush with cash and has been cutting costs. 

Nvidia

While some companies tried to jump on board the AI rocket ship in 2023, Nvidia’s AI business is far from hype. The chipmaker’s revenue grew at triple-digit rates in the past two quarters, and Nvidia earnings are expected to increase by 236% this year to $11.22 a share. In 2025, that’s forecast to grow by another 67%.

A team of analysts at UBS recently increased its AI industry revenue estimate by 40% for the coming years to $420 billion by 2027. Semiconductor makers are expected to be the chief beneficiaries.

Nvidia has made a name for itself as the leader in graphics processing units to train AI learning and language models, and analysts see that dominance continuing, even as other chipmakers grab their own piece of the pie. 

Meta Platforms

The parent company of Facebook and Instagram led the Communication Services Select Sector SPDR Fund NYSEARCA: XLC in the past year, and analysts remain bullish.

The Meta Platforms analyst forecasts show a consensus view of “moderate buy,” and Wall Street is forecasting earnings growth of 20% this year, following an expected increase of 115% for 2023. The company reports fourth-quarter and full-year results on January 31.

Despite a forward price-to-earnings ratio of 29, which is rich but lower than other growth stocks, analysts see room to run for Meta in 2024 as it benefits from the efficiencies of AI.

Tesla

The CEO is a wild card, and the car maker has been under the microscope for a series of recalls, but Wall Street expects Tesla’s earnings to start growing again this year after a decline in 2023. Analysts expect full-year net income of $3.80 a share, up 24%.

With EV rivals BYD Company Ltd. OTCMKTS: BYDDF and Rivian Automotive Inc. NASDAQ: RIVN coming on strong, in addition to growing EV offerings from traditional automakers, Tesla is facing new challenges.

While Tesla’s fourth-quarter deliveries were strong, Tesla analyst forecasts show some ambivalence, with a consensus view of “hold” on the stock. Analysts have concerns about the company’s profit margins, delivery forecasts and lack of a new vehicle model this year.