Are the Magnificent Seven doomed to underperform in 2025?

As 2024 comes to a close, the US market has delivered another impressive year, with the Nasdaq up 33%, the S&P 500 gaining 28% and the Dow rising 18%. The rally has defied fears of an economic slowdown, fuelled by stronger-than-expected growth and investor optimism.

At its heart are the “Magnificent Seven” — Apple (NASDAQ: AAPL), Microsoft (NYSE: MSFT), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Meta Platforms (NASDAQ: META), Tesla (NASDAQ: TSLA) and Nvidia (NASDAQ: NVDA) — which have dominated the market and driven impressive performance. As investors we need to understand whether their leadership is a feature of a new structural era, driven by breakthroughs like AI, or is it just temporary euphoria and a market anomaly. 

In this article, we examine the outlook for the seven, explore their resilience, and assess Amazon as a standout investment pick for the years ahead.

Reality or anomaly?

Two previous market bubbles – the Nifty Fifty and Dot-com – both heralded underperformance of the S&P500 vs equal-weighted S&P500, arguably due to underperformance of the very stocks that previously drove higher returns. Are the Mag Seven doomed to repeat the pattern?

2024 performance and drivers

Stock valuations in the late 1990s were based on expectations of high growth and profitability, which ultimately did not materialise. In contrast, today's high valuations, particularly among the Mag Seven, are supported by solid fundamentals in revenue, earnings, cash flows and return on equity.

Earnings expectations for most of the Mag Seven (excluding Tesla and Apple) increased throughout the year for both the current and next fiscal year as fundamentals and the macro-outlook supported improved sentiment. But as you can see in the following table, even the most well-known stocks closely tracked by top analysts experience significant shifts in market expectations from month to month, despite the businesses remaining sound as they execute long-term strategic visions under the guidance of quality management teams.

How will they perform in 2025 and beyond?

S&P 500 companies are expected to grow 2025 earnings and free cash flow at 12.6% and 17.9% respectively while the PE ratio declines 13% to 22.5. Let’s look at consensus expectations for the Mag Seven. 

While consensus expectations should always be taken with a grain of salt, it is clear the group continue to exhibit sustainable earnings and cash flow growth. At the same time, valuation multiples are set to drop below historical averages, signalling potential opportunities for time-arbitrage investors as longer-term growth prospects remain undervalued. Meanwhile, companies like Meta, Alphabet, Amazon and Microsoft are poised to leverage their strong balance sheets and robust cash flow generation to make substantial infrastructure investments, particularly in AI — the next transformative platform shift.

The Magnificent Seven owe much of their prominence not just to their scale — millions of businesses, billions of users and trillions of data points — but to their ability to capitalise on the transformational platform shift generated by artificial intelligence (AI), which has become the defining narrative for both their current performance and their future potential.

AI: From plateau to potential

The initial euphoria surrounding AI has begun to plateau, giving rise to three critical concerns:

1. How far can AI models scale?
2. How can businesses deploy AI effectively?
3. How does AI yield a return on investment?

Despite these concerns, investment in AI infrastructure is projected to top $1 trillion, reflecting its enduring promise. Today’s plateau marks a pivot from hype to execution—a critical transition where the focus shifts from capability to real-world impact.

"We overestimate the impact of technology in the short-term and underestimate the effect in the long run". - futurist and Stanford computer scientist Roy Amara noted in the 1960s.

The path forward for AI lies in three key areas:

1. Capability expansion: Multi-modal AI models and agentic AI workflows expand capabilities.
2. Efficiency gains: better/more compute, task-specific models and streamlined training processes improve scalability.
3. Usability improvements: Real-time data workflows embed AI into business operations.

AI is following a familiar S-curve technology adoption trajectory. Enterprises are focusing on foundational groundwork—data governance, cultural alignment and talent development—before reaping the full benefits of acceleration. The companies that master this transition are setting benchmarks, pressuring their peers to adapt or risk obsolescence.

“According to a working paper, genAI has been adopted at a faster pace than personal computers or the internet. The technology has a 39.5% adoption rate after two years, handily beating the internet and PC adoption rate of 20% in the same time period. In August 2024, 39.4% of the U.S. population age 18-64 used genAI, with 32% using it at least once during the week they were surveyed. The paper estimates that between 0.5% and 3.5% of all work hours in the US are currently being helped by genAI, translating to an increase in labour productivity of 0.125 and 0.875 percentage points at current levels of usage.”

For the Mag Seven, AI isn’t just a buzzword—it’s a transformative tool poised to reshape workflows, unlock efficiencies and fuel sustainable growth. Their ability to turn AI’s potential into tangible business outcomes positions them to lead the market’s next growth phase, ensuring their relevance well into the next decade.

The Magnificent Seven: company highlights

• Strengths: Dominance in consumer electronics and an expanding services ecosystem.
• Risks: Slower device upgrade cycles.
• Optionality: Innovations in personalised AI services and device integration.

2. Microsoft:

• Strengths: Enterprise AI leadership via enterprise software and Azure cloud dominance.
• Risks: Intensifying competition in cloud computing.
• Optionality: Consumer AI advancements and enhanced search capabilities.

3. Alphabet:

• Strengths: AI leadership spanning hardware, software and talent.
• Risks: Regulatory scrutiny.
• Optionality: Diversification via Waymo and Verily.

4. Amazon:

• Strengths: E-commerce dominance with multiple revenue streams and continued innovation at Amazon Web Services (AWS) enhanced through AI.
• Risks: Consumer spending slowdowns.
• Optionality: Healthcare initiatives (Amazon Care) and satellite projects (Project Kuiper).

5. Meta Platforms:

• Strengths: AI-powered content generation and recommendation systems.
• Risks: Rising costs and long-term metaverse ROI challenges.
• Optionality: new AI interfaces such as Meta Ray-Ban AR glasses and Quest devices

6. Tesla:

• Strengths: Electric vehicle (EV) and autonomous driving leadership.
• Risks: Growing competition in EVs.
• Optionality: Robotics and energy storage solutions.

7. NVIDIA:

• Strengths: Leading AI hardware and software ecosystem.
• Risks: Dependence on data centre growth.
• Optionality: Expansion into Infrastructure-as-a-Service (IaaS) and software solutions.

Top pick within the Magnificent Seven - Amazon

Amazon's diversified business model spanning e-commerce, digital advertising and cloud computing has been the foundation of its long-term success. The company’s strategic expansion into healthcare, Amazon Care, and low Earth orbit satellite constellation, Project Kuiper, reflects a bold move into high-growth, future-facing industries.

What truly sets Amazon apart is its focus on building primitives to solve customer problems.

AWS, its flagship profit centre, continues to deliver robust growth and cement Amazon's leadership in cloud computing services. Amazon has rapidly advanced custom silicon development, deploying over 2 million Graviton chips since 2018. Additionally, its newest Trainium AI chip developed for AI inference, Amazon Bedrock development platform and competitive conversational AI models underscore its ability to deliver cost-effective solutions. CEO Andy Jassy’s optimism about cloud potential — highlighting that 85% to 90% of IT spend remains on-premises — reflects untapped growth for AWS. Amazon’s relentless focus on scalability, affordability and strategic diversification positions the company to drive sustained value beyond 2024.

Emerging contenders to watch

• Accenture (NYSE: ACN): A global consulting powerhouse, Accenture is leveraging its expertise in AI and digital transformation to deliver tailored solutions for clients across industries.
• Intuit (NYSE: INTU): Renowned for its financial management software, Intuit is integrating AI to offer personalised insights, automation tools and enhanced customer engagement, transforming how SMBs and individuals manage their finances.
• ServiceNow (NYSE: NOW): A leader in workflow automation, ServiceNow is leveraging GenAI to accelerate adoption across industries.

Conclusion: vision, culture and the road ahead

The Magnificent Seven exemplify resilience and innovation. Their vision, organisational structure, and ability to adapt continue to set them apart. As we enter 2025, their success will hinge on navigating the intersection of AI's transformative potential and the challenges of scaling its ROI. Meanwhile, emerging players like Intuit and ServiceNow are carving their niches, making them contenders worth watching.

For investors, the focus must remain on fundamentals—strong balance sheets, scalable revenue streams and the ability to adapt to evolving technology. The Magnificent Seven may face headwinds, but their proven ability to innovate suggests they will continue to shape the future of markets.