McCrann: What’s next for Magnificent Seven super-stocks?

The ‘Magnificent Seven’ super-stocks have surged on the back of the AI frenzy, but what’s next for America’s tech giants?

The original FAANG super-stocks included America’s largest tech giants. Picture: Michael Nagle/Bloomberg

First, we had the FAANG super-stocks that drove the rise and, for a time, the seemingly never-ending yet further rise of Wall St.

Until that was, the Fed started taking away all that ‘free money’ - lifting its official interest rate from zero to 5.5 per cent.

Before that, though, we saw the first-ever trillion-dollar stock valuations; then on to and above $US2tn for some of them.

Back then, in the global ‘free money’ days, they in turn dragged the entire global market up with them.

Now, they could have been called the “Fabulous Five”, except they were six.

The five actual FAANG stocks - Facebook, Apple, Amazon, Netflix and Google - plus Microsoft.

For the last 18 months or so, it’s been the “Magnificent Seven” - all six original FAANG stocks except Netflix, which has been replaced by Nvidia and Tesla.

Since Wall St bottomed back in October 2023, they’d taken the Nasdaq up nearly 80 per cent, in the AI frenzy centred on of course Nvidia.

The AI chipmaker went from a $US300bn company to a $US3tn one. That’s $4.6tn, or just about double Australia’s entire GDP.

Over that time, the less tech-intensive, broader market measure, the S&P 500, went up a more subdued 56 per cent. While the Dow - which has only three of them, Amazon, Apple and Microsoft, in its 30 stocks - rose 40 per cent.

And then, in the last week, whack!

Nvidia down 8 per cent; Tesla 13 per cent; the overall Nasdaq 7 per cent.

Around $US2tn of value wiped away. The S&P and Dow both off around 3 per cent.

Our own entirely derivative market has of course followed all the way. At a subdued distance.

On the way up, the S&P/ASX 200 went up only 23 per cent, albeit topping 8000 for the first time. Now it’s come back 2 per cent. So far.

That’s the rub. Where next?

Opinion out of New York - at, to stress, this early stage - seems to have coalesced into two broad groups.

Those that see it as the inevitable and even desirable “pause that refreshes”.

Their argument comes down to two major themes.

That underlying corporate performance in the tech sector and in the AI ‘hot’ stocks in particular remains strong.

Further, that AI is a seminally shock - positive - event for the entire global economy - and indeed global culture; and it is one where the US not only has a headstart but an inbuilt comparative and indeed actual advantage.

The alternative macro perspective is essentially not that that is wrong, but that it’s overstated; and valuations have run ahead of reality and even optimistic projection.

Both take support from the broader macro perspective.

The upbeat “refresher pause” that the US will emerge with a Goldilocks-style soft landing. We’ll seen a low-inflation economic pick-up in 2025. Rates will have come down, overall corporate earnings will stay healthy.

The negative sees more of a hard landing. Rates coming down only slowly, and maybe not that far; the economy not surging, corporate profits getting hit. AI not an immediate or sufficient profit-boosting miracle.

Hmm. Take your pick.

Originally published as McCrann: What’s next for Magnificent Seven super-stocks?