The Magnificent Seven—but for How Long?

“The Magnificent Seven” means different things to different people. Does it remind you of the 1981 song by the Clash? If you’re a film buff, you may think about the 1960 film starring Steve McQueen and Yul Brynner.

When it comes to investing, tech giants Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla comprise the Magnificent Seven. Of these companies, Microsoft, Apple, and Nvidia—the latter thanks to AI—have the largest 2024 weightings.

Some investors attribute the Magnificent Seven stocks’ dominance to a “winner-take-all” environment in which a handful of companies achieve sufficient market share to hinder competition. In businesses for which gaining users drives success, establishing a strong market share may be like building a moat around profitability. But that market-share moat doesn’t guarantee a company can stay on top forever, or for long.

Think about the state of mobile phones 15 years ago. The BlackBerry was the gold standard for mobile business communication. Then, along came iPhones and Androids, and suddenly BlackBerry’s foothold was eroded.

History is littered with examples of household names that were usurped by the Next Big Thing. Remember, Sears was a Top 10-sized stock in the US once upon a time. AOL was synonymous with internet access in the 1990s. And in 2003, the most popular social media network starting with the letter “F” was Friendster.

Even the biggest companies have uncertain futures, highlighting the need for broadly diversified investments. If these seven “magnificent” companies manage to stay at the top of the market, that’s no assurance that higher returns will continue.