The Magnificent Seven, a group of well-established high-performing large-cap U.S. stocks, continue to dominate their industries and significantly drive broader stock market returns in 2024 but one of them is struggling, and it may have to be removed from the elite group.
The group currently includes Apple, the iPhone maker; Microsoft, the Windows PC software vendor; cloud computing giant, Google’s parent Alphabet; Amazon.com, the online retail and cloud computing behemoth; Nvidia, the hottest artificial intelligence (AI) stock of this decade; Meta Platforms, a social media titan that’s leading the design of highly potent open source AI models; and Tesla (NASDAQ:TSLA) stock, a pioneer in the electric vehicle space.
All but one of the current Magnificent Seven stocks have been instrumental in lifting the S&P 500’s returns during the past year. However, Tesla stock, which is down 10% year-to-date, has been a laggard, and its performance is distorting the group’s otherwise stellar performance record. The EV maker is falling short of the elite group’s performance-based glory.
I’m tempted to remove an underperforming Tesla stock from the Magnificent Seven and replace it with either Broadcom (NASDAQ:AVGO) or Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM).
The Magnificent Seven, and Potential Candidates
| Company | Market Cap | 1Yr Price Return | Analyst Rating | TTM EPS Growth |
| Nvidia (NASDAQ:NVDA) | US$2.8 Trillion | +149.1% | Strong Buy | 788.5% |
| Apple (NASDAQ:AAPL) | US$3.4 Trillion | +13.5% | Buy | 9.3% |
| Microsoft (NASDAQ:MSFT) | US$3.1 Trillion | +23.9% | Strong Buy | 25.1% |
| Alphabet (NASDAQ:GOOGL) | US$2.1 Trillion | +30.5% | Buy | 47.5% |
| Amazon.com (NASDAQ:AMZN) | US$1.9 Trillion | +39.8% | Strong Buy | 763.8% |
| Meta Platforms (NASDAQ:META) | US$1.2 Trillion | +49.6% | Strong Buy | 116% |
| Tesla (NASDAQ:TSLA) | US$740.4 Billion | -12.8% | HOLD | 1% |
| Taiwan Semiconductor (NYSE:TSM) | US$742 Billion | +65.7% | Strong Buy | -7.7% |
| Broadcom (NASDAQ:AVGO) | US$734 Billion | +76% | Buy | -26.5% |
Why Tesla stock should fall out of the Magnificent Seven list
The idea of designing a Magnificent Seven portfolio is to strive to create a list of no-brainer Buy stocks that one can “passively” buy and hold and expect to outperform the broader stock market. The list should maintain stocks with a demonstrable performance edge, and Tesla is failing.
TSLA is the only Magnificent Seven stock with a Hold rating from investment banking analysts, and it’s the only Magnificent Seven stock that has lost investors’ money over the past 12 months. Only Tesla and Apple have struggled to grow revenue over the past 12 months. Tesla stands as the oddest one out. Perhaps Tesla has lost its magnificence.
The company has been struggling to consistently engineer revenue and earnings growth lately. It faces stiff competition from new EV manufacturers that are matching (or exceeding) its product features at lower price points. It’s brawling with a growing list of deep-pocketed gasoline-powered automobile manufacturers and has resorted to price cuts to induce demand and win buyers over. Tesla’s EV dominance days look tougher.
During the past 18 months, Magnificent Seven stocks pivoted on generative artificial intelligence to draw new investor interest, but Tesla’s AI investment strategy seems unclear. If AI (generative AI) is the most valuable ingredient in corporate design that drives stock prices in 2024, then Tesla’s fumble on the hot investment theme could be a losing trait, for now. The markets are waiting to see what is to become of Tesla’s genius founder Elon Musk’s recent poll on a US$5 billion AI investment decision.
A new Magnificent Seven stock: Broadcom
Two potential contenders to replace Tesla on the Magnificent Seven elite are Broadcom and Taiwan Semiconductor Manufacturing Company. The two AI stocks have exhibited sustained growth potential as they win new business and become key suppliers to the expanding AI space. However, TSMC’s primary listing remains in Taiwan. If “nationality” is a key factor, the high-flying Asian stock falls short of addition to the elite club even though it is investing billions to bring semiconductor production “back” onto American soil.
A strong contender to replace Tesla is Broadcom. The company is one of the largest global semiconductor manufacturers well-positioned to supply advanced chips to a growing artificial intelligence industry for years to come. Similar to Nvidia, the strong-performing AI stock recently completed a ten-for-one stock split, and is winning over new AI customers, including a partnership with OpenAI, the developer of ChatGPT, while its recent acquisition of VMware adds new oomph to its earnings and cash flow statements.
The company’s quarterly AI revenue grew 280% year-over-year during the last quarter. Market analysts project a high 18% average earnings growth rate over the next five years, and management recently raised revenue estimates for 2024. Good times are rolling at Broadcom, and its stock has the potential for a magnificent performance over the next five years.
