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Talking Heads. One direction. Destiny’s Child. Even the biggest teams fall apart, and that’s the case on Wall Street. The Magnificent 7 (Alphabet, Nvidia, Microsoft, Meta, Apple, Amazon and Tesla) don’t seem to have the stage they’re used to. While Nvidia and Alphabet outperformed the S&P 500 last year, five other stocks dragged the index down.
Artificial intelligence, on the other hand, has put the spotlight on companies that are leading the way in new technologies. Nvidia went from being the smallest part of the Mag 7 to the largest, while Google received attention for its DeepMind division. Private companies, especially OpenAI and Anthropic, are taking more air into the room as they raise huge amounts of money and their chatbot products become everyone’s therapist and personal email writer.
Mag 7 isn’t going anywhere overnight, or maybe, but a new set of companies is dominating the popular narrative.
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The name Magnificent 7 became popular in 2023, coined by Bank of America strategist Michael Hartnett and based on an unknown western movie. The group of companies has grown to make up a large portion of the S&P 500 over the past decade, and their percentage of the index’s market value has risen from about 13% in 2016 to 33% earlier this month.
Don’t let your growth fool you, though:
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Mag 7’s share of the S&P 500 is down from last year’s level as of this month and is increasingly dominated by companies that are adapting to the AI era. Nvidia now accounts for more than a fifth of the total Mag 7 market. The chip maker, which has shifted its focus in recent years from sports to AI, probably costs more than the three key members of the group (Amazon, Meta and Tesla) combined.
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Like Nvidia, Microsoft stands tall in the group compared to its peers, Moses Singer partner Rob Rosenberg told The Daily Upside. While Nvidia has its own chips, Microsoft has its AI assistant Copilot and its big investments in OpenAI and Anthropic, the latter of which has integrated its models into Copilot since this month.
As the narrative shifts to AI and some of the S&P’s biggest players struggle to grow the index they dominate, Hartnett wrote a note that the group should get a new moniker: the Lagnificent 7. Appropriately, Hartnett said. The Wall Street Journal that in the original western film, only certain characters survived.
And like the wild west, investors leave some companies in the desert. Tesla, once a favorite among traders, saw daily investor activity drop 43% last year from 2023. The company’s sluggish electric car sales, along with the CEO’s divisive adventures, have rubbed minority shareholders the wrong way.
The companies that are getting the most buzz, meanwhile, are branching out into new companies. One that has been in the news: MANGO, an acronym for Microsoft, Anthropic, Nvidia, Google DeepMind and OpenAI. (There is some debate on the Internet about whether the M and A are actually Meta and Apple, which overlaps a lot with the Mag 7.)
Venture capitalist Kristina Shen told CNBC that these few AI-forward companies are now managing consumer emotions. Rosenberg, who wrote about switching to MANGO last year, told the Daily Upside, “It’s really about stealing the air in the room.”
It is not that Mag 7, or its predecessor FAANG (Facebook, Apple, Amazon, Netflix and Google), has lost market dominance. They are all still titans in their fields. But AI is now driving the conversation on Wall Street and at the dinner table, as well as attracting hundreds of millions of dollars in new capital.
MANGO’s impact is currently difficult to measure because its two titans, OpenAI and Anthropic, are still private companies. However:
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Rosenberg expects that AI companies may go public when enthusiasm (and funding) wanes. Compared to the Internet era, when companies are trying to get their money out of their initial investments through IPOs, Rosenberg said, “People are playing the long game.”
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OpenAI is reportedly considering an IPO later this year for around $1 trillion. Anthropic has no known plans to go public, but it will be a behemoth once it takes hold: Its net worth rose to $380 billion after its funding round in February. Together, they would hit the market like a giant belly flop.
Nvidia and Microsoft parted ways with Mag 7 to make AI the core of their businesses. Some companies may expand their AI-related businesses as their most popular revenue streams dwindle. Amazon and Alphabet divisions to watch, Rosenberg said, include:
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AWS, Amazon’s cloud division, is becoming increasingly important as AI demands more computing power. Revenue from AWS grew 24% year-over-year in the most recent quarter to make up about 17% of Amazon’s sales, which is building its empire in Internet marketing.
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DeepMind, an Alphabet lab that is building an AI system to advance biological research through protein analysis. (It even won the 2024 Nobel Prize in Chemistry.) Now, its scientists are building deep learning models that make predictions about genes; they are used in the research of cancer and other diseases.
Apple, on the other hand, has seen little success with its AI efforts after failing to impress with its innovative, and much-delayed, Siri development. The integration of Meta’s AI similarly failed to make a big splash. Also, we include the Mag 7, Tesla’s AI-powered robotaxis and humanoid robots that don’t seem enough to put it at the center of the AI conversation.
Investors have been collecting more zeitgeisty companies and catchy names since the 1960s, when the Nifty Fifty stocks ruled the industry. There was WATCH (Walmart, Amazon, Target, Costco and Home Depot), BAT from Beijing (Baidu, Alibaba and Tencent), and Granolas (11 European companies including Novo Nordisk and Roche). Like its name, MANGO can be sticky. Rosenberg said what sets this group apart is AI’s industry-wide influence, reshaping everything from medicine to education.
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