"Is the 'Magnificent 7' outdated? Wall Street wants AI!"

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Wall Street’s most influential stock grouping, the “Magnificent Seven,” is facing a redefining moment as investors begin searching for a new combination that more comprehensively reflects the beneficiaries of the AI revolution.

In the nearly three years since OpenAI’s ChatGPT sparked a global AI craze, the “Mag 7” — Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla — have dominated the surge in U.S. stocks, but the AI investment theme has now expanded to a much broader range of companies.

The evolution of the AI investment theme has spawned new market leaders. Companies like Broadcom, Oracle, and Palantir are emerging as undeniable forces in the AI sector thanks to their outstanding performances. Oracle’s stock is up over 75% this year, while Palantir has been the best performer in the Nasdaq 100, soaring 135%.

Wall Street is proposing various new stock groupings to capture the true AI winners. From the “Fab Four” to the “Elite 8,” these combinations aim to more accurately reflect AI-era investment opportunities. Even the Chicago Board Options Exchange has launched a “Magnificent 10” index that includes ten stocks.

Changing Status of Traditional Tech Giants

Data shows that the “Mag 7” still accounts for nearly 35% of the S&P 500 Index, and profits are expected to grow by over 15% by 2026. However, there’s increasing divergence within the group:

Nvidia, Alphabet, Meta, and Microsoft are seen as beneficiaries of the AI era, while the outlook for Apple, Amazon, and Tesla is relatively unclear.

Chris Smith, portfolio manager at Artisan Partners, which manages $2.4 billion, says, "Just because the 'Mag 7' won in past technology cycles such as the mobile internet and e-commerce, doesn’t mean they will win in the AI era."

Apple faces dual pressures from slowing growth and lagging in AI, while Tesla’s electric car business is under heavy pressure due to declining sales and intensified competition.

Nevertheless, both companies still have a large number of supporters, betting that the Apple iPhone will be the primary device for consumers using AI, and Tesla will place its hopes on autonomous driving and humanoid robot businesses.

Jurrien Timmer, Global Macro Director at Fidelity Investments, points out:

“A company can become too big to ignore. As the AI story evolves, new winners may take the place of old winners.”

Wall Street Redefines AI Beneficiaries

AI investment opportunities have now expanded to areas outside the traditional “Mag 7.”

Thanks to strong growth in its AI-related cloud computing business, Oracle’s stock has outperformed most members of the “Mag 7.” Palantir, as one of the few AI software winners, has stood out while traditional software leaders like Salesforce and Adobe face fears of being marginalized.

The expansion of the AI industry chain is bringing investment opportunities to more companies.

TSMC is seen as a key component of the AI ecosystem, while communications equipment company Arista Networks and memory chip maker Micron Technology are also benefiting from AI infrastructure buildout.

Faced with the expansion of the AI investment theme, Wall Street analysts have proposed a variety of new stock grouping concepts.

Seaport Research chief equity strategist Jonathan Golub recommends removing Tesla and creating a "Big Six" group. Melius Research’s Ben Reitzes prefers an “Elite 8” that includes chipmaker Broadcom.

The “Magnificent 10” index launched by the Chicago Board Options Exchange includes the original seven companies as well as Broadcom, Palantir, and AMD. The exchange stated that the selection of components is based on “liquidity, market capitalization, trading volume, and leadership in fields such as artificial intelligence and digital transformation.”

Nick Schommer, portfolio manager at Janus Henderson, which manages about $34.7 billion, said:

“We really do need to broaden the conversation beyond the ‘Mag 7’. Oracle is now absolutely one of them, and so is Broadcom.”

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