Magnificent 7 Stocks, Ranked Best to Worst in 2024

Summary

The video discusses the 'Magnificent 7,' a group of high-performing tech stocks including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. It explores their market dominance, comparing their collective market cap to major economies, and questions whether their valuations reflect a bubble or a new normal. The video then ranks these companies based on qualitative and quantitative analysis, considering factors like business quality, financial track record, future outlook, and current valuations. It also touches on challenges such as competition and geopolitical issues, particularly for Apple and Tesla in China.

Takeaways

• 📈 The 'Magnificent 7' refers to seven high-performing and influential tech stocks: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
• 🌐 The combined market cap of the 'Magnificent 7' is equivalent to the entire stock market cap of Japan, Canada, and the UK, and surpasses the GDP of all countries except China and the United States.
• 🔄 The 'Magnificent 7' have shown resilience, with four out of the seven companies increasing their valuations in the first two months of 2024.
• 📊 The ranking of these companies is based on a qualitative vs. quantitative approach, evaluating business quality, financial track record, future outlook, potential, and current valuations.
• 🏆 Microsoft leads the ranking with a strong business model and a blended score of 7.8, considering both quality and valuation.
• 📱 Apple and Alphabet (Google's parent company) share a blended score of 6.4, with Apple's valuation being considered fair and Alphabet's valuation being attractive.
• 🤖 Tesla, despite its innovative projects, receives a lower blended score of 5.2 due to concerns about its valuation and dependency on the Chinese market.
• 🚀 Nvidia, a favorite in the AI boom, has a blended score of 6.8, reflecting its superior offerings in hardware and software integration, though its valuation is seen as high.
• 🔮 The 'W Factor' is introduced as a multiplier to the score, representing a company's potential, with Nvidia and Tesla receiving the highest multipliers for their exciting outlook and potential.
• 🔍 The video emphasizes the importance of investors conducting their own analysis and judgment, as the ranking is subjective and based on the current market environment.
• 🔄 The script highlights the dynamic nature of the tech industry, where companies must continuously innovate and adapt to maintain their market positions and valuations.

Q & A

What is the significance of the term 'The Magnificent 7' in the context of the stock market?

The Magnificent 7 refers to a group of seven high-performing and influential technology stocks, specifically Alphabet (Google), Amazon, Apple, Meta Platforms (Facebook), Microsoft, Nvidia, and Tesla. These companies have a significant market capitalization and impact on the stock market.

How does the market capitalization of The Magnificent 7 compare to other global financial benchmarks?

The combined market capitalization of The Magnificent 7 is equivalent to the entire stock market capitalization of Japan, Canada, and the United Kingdom. It is also larger than the GDP of every country in the world except China and the United States.

What factors contribute to the high market valuations of The Magnificent 7?

The high market valuations are attributed to their strong performance in the technology sector, their influence on the stock market, and their ability to generate consistent profits. Their market capitalization reflects investor confidence in their continued growth and dominance in their respective industries.

What is the role of China in the context of The Magnificent 7, particularly for Apple and Tesla?

China plays a significant role as both a production base and a market for Apple and Tesla. However, recent economic slowdowns and increased competition from Chinese producers have led to a decline in sales for these companies, affecting their market valuations.

How does the video script suggest ranking The Magnificent 7?

The script suggests ranking The Magnificent 7 based on a blend of qualitative and quantitative factors. The qualitative aspect includes the quality of the business, economic moat, and sustainability of profits, while the quantitative aspect considers financial performance over the last five years, financial ratios, and current valuations.

What is the qualitative to quantitative scoring ratio used in the ranking system?

The ranking system assigns 80% of the score based on the quality of the company and 20% based on the company's current valuations and financial ratios.

What is the estimated intrinsic value of Alphabet (Google) according to the video?

The estimated intrinsic value of Alphabet (Google) is between $160 to $180 per share.

How does the video script address the future of Google Search with the rise of AI and large language models?

The script acknowledges that the future of Google Search seems uncertain with the rise of AI and large language models like GPT. It suggests that there is a potential shift in how users retrieve data, which could impact Google's dominance in the search engine market.

What are the key strengths of Apple as a company according to the script?

Apple's key strengths include brand monopoly, customer loyalty, high switch costs, and barriers to entry. These factors contribute to its strong position in the market.

What challenges is Apple facing in China, and how does it affect its market valuation?

Apple is facing challenges in China due to its reliance on the country for production and domestic demand. A drop in sales and market share in China, along with geopolitical tensions, has led to a reevaluation of Apple's market valuation.

How does the script evaluate the potential of Tesla and Nvidia in terms of future growth?

The script recognizes Tesla and Nvidia as having exciting futures and potential, particularly in areas such as full self-driving, robotics, and artificial general intelligence (AGI). However, it also cautions that these potentials require a good rate of return and may need significant imagination to justify current valuations.