MW This outlook shows why investors should maintain exposure to the 'Magnificent Seven'

By Laila Maidan

Big Tech is expected to see double the earnings growth of the rest of the S&P 500, as long as the group can maintain momentum in a key area

In the first half of 2025, Big Tech stocks faced down trade wars, hot wars in the Middle East and innovative Chinese large language models. It has been volatile, but the so-called Magnificent Seven stocks have proven resilient and have driven the Nasdaq 100 index to a record high.

Wall Street now expects the Magnificent Seven will beat the broader market and remain in the driver's seat this year, at least on a relative basis.

The Magnificent Seven stocks - made up of Apple Inc. $(AAPL)$, Nvidia Corp. $(NVDA)$, Alphabet Inc. $(GOOGL)$, Meta Platforms Inc. $(META)$, Amazon.com Inc. $(AMZN)$, Tesla Inc. $(TSLA)$, and Microsoft Corp. $(MSFT)$ - are showing continued strength after staging a comeback. The Roundhill Magnificent Seven ETF MAGS closed at $54.50 on Tuesday, up by almost 35% since its trough on April 8. The index is trending above its 200-day moving average, but the tech-heavy Nasdaq hasn't followed suit, with only 36.6% of stocks within the index trading above their 200-day moving average.

The Magnificent Seven's move to the upside is expected to continue in the near term with a noticeable uptick in call options for the group, which are contracts that give the buyer the right - but not the obligation - to purchase a stock at a specified price by a specified time. Call options typically increase when the market expects the underlying asset to rise in price. Andrew Hiesinger, founder of Quant Data, told MarketWatch that the larger block orders he's seeing suggest institutional buying, with the majority of contracts being for Tesla and Nvidia. As volatility calms and open interest rises, the market appears to be positioning for continued upside for now, he added.

Like the past couple of years, Big Tech's leadership among a broader swath of stocks will likely play out in 2025. And while this year brought a slowdown for this group, it's not enough to close the gap between their performance and the broader market. However, investors need to lower their expectations for the extent of the gains the Magnificent Seven could see this year, said Rob Swanke, senior research analyst at Commonwealth Financial Network.

The seven companies will likely see a slowdown as earnings-per-share growth goes from the elevated 31% in 2023 and the 40% in 2024 to an estimated 17% in 2025, according to data from FactSet compiled by J.P. Morgan. Still, that growth rate would beat the S&P 500, excluding the Magnificent Seven, and value stocks, which are expected to see earnings per share growth of 7% and 5%, respectively, in 2025.

While the Magnificent Seven are supported by stronger growth, they are expensive relative to the broader market, with an average forward price-to-earnings ratio, which is how much an investor pays for every dollar of expected earnings, of about 44. By comparison, the S&P 500 has a forward P/E of about 21, according to data compiled from FactSet.

This means the Magnificent Seven have little wiggle room to fall behind. Swanke noted that since these stocks are rallying on the promise of artificial intelligence, for them to maintain their earnings-growth expectations, AI adoption across business sectors needs to continue to increase to prove that there's rising demand for the technology.

Below is a chart that shows the increase in AI use across different sectors. The white shadows represent how much AI use is expected to grow within each sector in the next six months.

Perhaps the biggest caveat for this group of seven stocks is that they have heightened volatility, with an average beta of 1.5, according to data compiled from FactSet. The higher a measure is above 1, the more volatile the equity is relative to the broader market.

Below is a table of each stock's last 12-month beta based on data compiled from FactSet. Stocks like Tesla and Nvidia have much higher volatility compared with Microsoft and Alphabet.

   Alphabet Inc.        Ticker  Beta LTM 
   Apple Inc.           AAPL    1.3 
   Alphabet Inc         GOOGL   1.1 
   Nvidia Corp.         NVDA    2.2 
   Meta Platforms Inc.  META    1.4 
   Amazon.com Inc.      AMZN    1.4 
   Tesla Inc.           TSLA    2.5 
   Microsoft Corp.      MSFT    0.98 

The good news is that stock market volatility has settled according to the VIX - an index that measures expected volatility based on S&P 500 options contracts. The index has an inverse relationship with the S&P 500, spiking when the index drops or volatility rises and vice versa. The VIX is now near 17 after spiking to extremes above 50 in April. Measures below 20 indicate low expected volatility.

Overall, investors should maintain exposure to the Magnificent Seven if they hope to beat the S&P 500 in 2025. However, keeping in mind that with bigger reward often comes bigger risk, Swanke noted.

-Laila Maidan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 26, 2025 09:20 ET (13:20 GMT)

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