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Over the past year, a group of US stocks have driven stock market sentiment. This collection has been referred to as “The Magnificent 7” given the magnitude of the share price returns and the number of stocks included. If you had invested £1000 equally across the different companies a year ago, this is how much you would have today.
Superior performance as a group
For reference, the basket is composed of Nvidia, Tesla, Apple, amazon, Alphabet, Goaland MicrosoftIndividual company returns over the past year range from Tesla's -17% to Nvidia's 179%. That's a huge range to deal with!
An equal split across all the shares means my yield percentage would be 48.5%. That means my £1,000 would currently be worth £1,485. That's a pretty substantial unrealised gain considering that FTSE 100 Index has risen only 10% in the same period. Even technology companies Nasdaq The index is up only 24%.
A key conclusion
One of the immediate takeaways I got from this is that diversification is key to success. While seven stocks are not enough to achieve 100% diversification, they certainly spread my risk. For example, let's say I had decided to buy one stock and I had settled on one. Tesla (NASDAQ:TSLA). If that were the case, you would have suffered losses by now.
Although the electric vehicle (EV) maker's share price has fluctuated wildly over the past year, the trend has been downward. The company has posted some disappointing updates for investors, both on delivery figures and financial data.
For example, the total number of deliveries in the second quarter fell by 4.8% compared to the same quarter last year. That may not seem like much, but over the course of 2023 it grew at an incredible rate. This makes it all the more poignant to consider.
The much-hyped robotaxi launch has been delayed and demand for electric vehicles in China is weak, so the share price has struggled to gain traction. However, the impact of the charismatic Elon Musk should not be underestimated. His ability to impress shareholders and grow a company is a real asset that Tesla must retain.
Next year
Of course, the risk of distributing my £1000 is that I could also miss out on big gains. I would be in a good position if I had chosen Nvidia and ignored the rest.
Looking ahead, I think the returns for the Magnificent 7 will be different. I think Nvidia will continue to rise, but at a much slower pace than over the past year. Given the market cap and size of the company, it is highly unlikely that we will see another 179% increase.
However, I think the group as a whole will continue to move forward. Companies like Apple and Alphabet are clearly demonstrating how to monetize ai. This includes Apple's latest developer conference, where new ai features on the iPhone were shown off. If ai remains at the forefront of innovation, the stock should continue to rise.
The biggest risk I see is that investors will rush to safer assets. If sentiment turns negative later in the year, these high-growth stocks are likely to bear the full brunt of investors' concerns.
