There are seven companies that are now so big they have the power to crash global stock markets – or make savers worldwide ever richer. The so-called Magnificent Seven – Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft and Nvidia – now make up about a fifth of the value of the world’s stock markets.
Their valuations are hitting stratospheric levels as investors believe they will be the biggest winners of the growth and spread of artificial intelligence (AI).
But while they are often lumped together, they are very different businesses and their outlooks are not the same.
Midas runs the rule over them to determine which are overvalued and could be set for a fall – and which have further to run.
1. Alphabet
Alphabet owns Google, YouTube, Fitbit and phone maker Pixel, as well as speculative companies such as self-driving car maker Waymo and drone delivery business Wing.
Third-quarter figures released on October 29 showed a 16 per cent increase in sales to more than $100 billion (£75 billion). Operating income rose 9 per cent to $31.2 billion.
Chief executive Sundar Pichai was upbeat, stating that Alphabet had a ‘terrific quarter’. But it also said it would be spending more than expected as it splashes out on data centres and other AI-related infrastructure.
The so-called Magnificent Seven – Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft and Nvidia – now make up about a fifth of the value of the world’s stock markets
Outlook: Alphabet is valued at 27 times earnings, meaning that for every £27 you pay for a share the firm makes £1 of profit.
This is a similar price-to-earnings ratio as UK tech stocks such as fintech firm Wise and IT infrastructure provider Softcat, despite the US market being more highly valued than the UK. This suggests Alphabet’s valuation is not outlandish.
Building up infrastructure to scramble for domination in the cloud market is expensive. However Alphabet is diversified thanks to YouTube and its search business, so it’s not entirely dependent on its cloud business for profits.
It has wacky ideas – last week’s was Project Suncatcher, aimed at powering AI in space, which may never pay off – but there are underlying solid businesses here throwing off cash. It’s pricey but not especially precarious.
2. Amazon
The online retail giant also makes money from advertising and cloud services, and AI products sold to businesses and developers. Its retail business is far less profitable than the tech side.
Sales for the third quarter, reported on October 30, were $180 billion, up 13 per cent. The cloud segment is growing fast as Amazon partners with AI companies and offers many models to clients via its Bedrock service.
The stock had been trailing its Magnificent Seven peers before the results, with analysts concerned about competition from Google and Microsoft on its cloud services. Boss Andy Jassy has been laying off staff and indicated that he would not stop. The firm is also spending heavily on AI.
While some insiders welcome cuts, saying the business had become ‘bloated’, others are concerned about morale.
Outlook: The price-to-earnings ratio of 33 isn’t historically high, but it prices in a lot of success and doesn’t leave much room for error.
With many uncertainties around US trade tariffs and Amazon’s slower-growing retail business, as well as stiff competition in AI, it wouldn’t take much to knock Amazon off its perch.
3. Apple
Apple announced full-year and fourth quarter results on October 30 – and its growth rate was moderate compared with tech peers.
Revenue was up 10 per cent year-on-year for the fourth quarter, with earnings up 12 per cent.
Tariff costs were $1.1 billion in the last quarter and $1.4 billion in the coming quarter, estimates CFO Kevan Parekh.
While results were ahead of expectations, some analysts say Apple is behind rivals in AI and the guidance of mid to high single-digit growth for the next quarter showed it wasn’t in a high-growth mode.
Outlook: Given reservations over Apple’s strategy, its valuation is high at 33 times earnings, above its own historic norms and making it more expensive than some other Magnificent Seven stocks.
Apple is probably not due a collapse, but could see a gradual deflation if new products fail to excite customers and investors.
4. Tesla
Elon Musk’s electric car business’s third-quarter figures on October 22 missed analyst estimates and the stock fell.
While sales were ahead of expectations at $28 billion, profits were less than hoped.
Tesla cited ‘near-term uncertainty’ from trade tariffs and US tax policy, but says that in the long term its AI investments will make its products more attractive.
Some analysts believe that the company’s technology is a huge strength, others that it relies too heavily on hope over reality.
Outlook: Tesla’s valuation is stratospheric, if you use the traditional model of looking at how much profit the company makes per share. It’s reminiscent of the dotcom boom at 263 times past earnings – predicted earnings being harder to quantify – far higher than other Magnificent Seven rivals. Shares are up 22 per cent over the past year.
Robotaxis and self-driving cars are exciting, but Tesla isn’t really delivering in the short term. There’s the possibility for a very unhappy ending here.
5. Meta Platforms
Meta, which owns Facebook, Instagram and WhatsApp, reported its third-quarter figures on October 29, which were marred by it allowing for a $16 billion tax bill.
This was a result of President Donald Trump’s ‘big beautiful Bill’ changing the way it accounts for some of the taxes it will pay, Though no extra cash has been handed over, and the company insists that due to the same law it will pay less federal US tax over time, it was enough to spook the markets.
In fact, sales were up 26 per cent, and advertising – a key driver for Meta – was strong with the average price per ad up 10 per cent.
But costs rose 32 per cent, as it paid more for AI experts and data centres. And it indicated expenditure would rise still further.
The shares dropped significantly on the results. Some analysts wonder when the higher expenditure will provide a payback.
Outlook: Meta has a more modest valuation – at 26 times earnings. However, its AI spending is costly and could be slow to reap rewards.
The share price fall after the tax charge shows Meta can’t afford to put a foot wrong if it is to sustain current levels.
The Magnificent Seven’s valuations are hitting stratospheric levels as investors believe they will be the biggest winners of the growth and spread of artificial intelligence (AI)
6. Microsoft
Microsoft’s figures for the first quarter of its financial year, announced on October 29, showed revenue up 18 per cent on the previous year. Personal computing growth was modest, but its AI and cloud business, called Intelligent Cloud, grew 26 per cent. Results were ahead of expectations.
Some analysts note the firm is spending a lot of money on AI and are unsure when it will pay off.
Outlook: Microsoft is costly on 35 times earnings, which doesn’t leave much margin for error. It’s weathered storms before, but the growth areas for the business now are in the cloud and AI, where the competition and costs are huge.
The possibility of another ‘lost decade’ for Microsoft investors isn’t inconceivable.
7. Nvidia
Nvidia is the world’s largest firm, growing on the huge demand for chips to power AI.
All eyes will be on its next figures on November 18. The last, reported on August 27, covered its second quarter, and showed 56 per cent growth in sales, with profit up 36 per cent.
Many investors are concerned that Nvidia can’t currently export to China because of US security restrictions aimed at limiting the country’s technological progress. And the comment last week from Nvidia’s chief executive Jensen Huang that ‘China is going to win the AI race’ unsettled them further.
Huang did soften his stance later, but for many the comment emphasised the business’s vulnerability to events outside its control.
Outlook: Nvidia trades on a very high multiple of 52 times earnings, as experts rate its business acumen and the quality of its chips. However, Nvidia itself was a disruptor that took on the likes of Intel and won, and there are plenty of others snapping at its heels.
As a final note from Midas, it is worth pointing out that Intel, which was once the most valuable company in the world, is now worth less than 4 per cent of Nvidia – how the mighty fall…