Magnificent 7 Stocks, Ranked Best to Worst in 2024
Summary
TLDRThe 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
- ๐ The 'Magnificent 7' refers to seven high-performing and influential tech stocks: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
- ๐ 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.
- ๐ The 'Magnificent 7' have shown resilience, with four out of the seven companies increasing their valuations in the first two months of 2024.
- ๐ 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.
- ๐ Microsoft leads the ranking with a strong business model and a blended score of 7.8, considering both quality and valuation.
- ๐ฑ 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.
- ๐ค 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.
- ๐ 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.
- ๐ฎ 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.
- ๐ 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.
- ๐ 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.
Outlines
๐ Market Cap and Valuation of The Magnificent 7
This paragraph discusses the market capitalization of the Magnificent 7, a group of seven high-performing and influential technology stocks, which includes Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. It compares their combined market cap to the entire stock market of Japan, Canada, and the UK, and notes that it is larger than the GDP of every country except China and the United States. The paragraph also introduces the topic of whether the current valuations indicate a bubble or represent a new normal. It references an infographic and write-up from KOBC Letter as of January 4th, 2024, and discusses the continued growth of these companies despite skepticism.
๐ค Evaluating the Magnificent 7: Quality and Valuation
The paragraph delves into the criteria used to rank the Magnificent 7, focusing on qualitative aspects such as the quality of the business, economic moat, and sustainability of profits, as well as quantitative factors like financial track record and current valuations. It explains the scoring system used, with 80% of the score based on qualitative factors and 20% on quantitative valuations. The paragraph also introduces the first company in the ranking, Alphabet, and provides an analysis of its market position, network effects, and potential risks from emerging technologies like GPT models. Alphabet's quality score is given as 6, and its valuation score as 8, resulting in a blended score of 6.4.
๐ Apple's Market Position and Challenges
This section continues the analysis by focusing on Apple, discussing its strong brand monopoly, customer loyalty, and high switch costs. However, it also highlights the challenges Apple faces due to its reliance on China for production and sales, which is complicated by the current geopolitical climate. Apple's sales in China have dropped significantly, affecting its market share. Despite these challenges, Apple's quality score is given as 7, and its valuation is considered fair, resulting in a blended score of 6.4, similar to Alphabet.
๐ก Microsoft and Meta Platforms: Diversification and Innovation
The paragraph discusses Microsoft's strong business model, diverse portfolio, and continuous innovation, leading to a quality score of 9. It also covers Meta Platforms' recent struggles and transformation, with a focus on their investments in AI and efforts to adapt to changes in the digital advertising landscape. Microsoft's valuation score is 3, due to a slightly overextended valuation, resulting in a blended score of 7.8. Meta Platforms, on the other hand, is given a quality score of 7 and a valuation score of 3, leading to a blended score of 6.2.
๐๏ธ Amazon and Tesla: Growth Prospects and Valuations
This section analyzes Amazon and Tesla's current positions and future prospects. Amazon is seen as turning a corner after its investment cycle, with a strong foundation for growth in e-commerce, advertising, cloud, and logistics. It receives a quality score of 8 and a valuation score of 6, resulting in a blended score of 7.6. Tesla's valuation, however, is more contentious, with its high price-to-sales ratio being justified by its potential in self-driving, energy, and robotics. Despite its strong brand and capabilities, Tesla's valuation score is 2, leading to a blended score of 5.2.
๐ Nvidia's Potential in the AI Era
The final company discussed is Nvidia, which is seen as a leader in AI GPUs and software-hardware integration. While its quality is highly regarded, its valuation is considered lofty and driven by momentum. Nvidia's quality score is 10, but its valuation score is 2, resulting in a blended score of 6.8. The paragraph concludes with a discussion on the potential or 'W Factor' of the companies, with Nvidia and Tesla receiving the highest multipliers due to their exciting outlook and potential in areas like self-driving, robotics, and AGI.
Mindmap
Keywords
๐กMarket Cap
๐กGDP
๐กBubble
๐กInvestopedia
๐กValuation
๐กEconomic Moat
๐กNetwork Effects
๐กMonopoly
๐กArtificial Intelligence (AI)
๐กSupply Chain
๐กDiversification
Highlights
The market cap of the Magnificent 7 is equivalent to the combined stock market value of Japan, Canada, and the UK.
The Magnificent 7's market cap surpasses the GDP of all countries except China and the United States.
The term Magnificent 7 refers to a group of seven high-performing and influential tech stocks, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
The Magnificent 7's market performance in the first two months of 2024 defied expectations, with four out of seven companies seeing higher valuations.
Investopedia defines the Magnificent 7 as a group of stocks in the technology sector with significant market influence.
The president of YY Research suggested that the Magnificent 7 may not be as magnificent due to internal fragmentation.
China's economic downturn affects Apple and Tesla sales, impacting their market valuations.
The ranking of the Magnificent 7 is based on qualitative and quantitative analysis, including business quality, financial track record, future outlook, and current valuations.
Alphabet's quality score is affected by the potential disruption of Google search by AI and large language models.
Apple's quality score is impacted by its complicated relationship with China and a drop in sales there.
Microsoft is recognized for its strong business across software, hardware, gaming, cloud, and AI, earning a high quality score.
Meta Platforms' quality score reflects its focus on AI capabilities and efforts to innovate despite past challenges.
Amazon's business is seen turning a corner with a focus on customer satisfaction and growth in e-commerce, advertising, and cloud services.
Tesla's valuation depends on the perception of its future beyond being just a car company, with potential in full self-driving, energy, and robotics.
Nvidia's valuation is influenced by its leadership in AI GPUs and potential growth into new markets.
The final ranking of the Magnificent 7 places Microsoft at the top and Tesla at the bottom based on the blended scoring system.
The ranking exercise is not prescriptive and encourages investors to conduct their own analysis and judgment.
Transcripts
the market cap of The Magnificent 7 is
now the same size as the market cap of
the entire stock market in Japan Canada
and the United Kingdom combined also the
Magnificent 7 has a larger market cap
bigger than the GDP of every country in
the world other than China and the
United States so is this a bubble or The
New
Normal
so this infographic and write up from
kobc letter was accurate as of gen 4th
2024 so for those of you who thought
that the max 7 couldn't rally any higher
the snop market went ahead to prove most
of us wrong with four out of the seven
names pushing for higher valuations in
the first two months of 2024 so
according to Investopedia the
Magnificent 7 is a term that has been
repurposed to refer to a group of seven
High performing and influential stocks
specifically in the technology sector so
these seven companies are alphabet
Amazon Apple meta platforms Microsoft
Nvidia and Tesla so the Genesis of this
video idea was actually pretty
interesting so it was essentially
triggered by a headline that had seen
somewhere so at YY the president of YY
research recently made a remark stating
that the Magnificent 7 isn't all that
magnificent suggesting that there was a
fragmentation within the ranks itself so
my interest was further picked when he
published a short article on YY quick
takes with the title two of The
Magnificent Seven get Shanghai and if
you attempt to decipher its meaning it's
probably due to their involvement with
China by extension so long story short
China is in the recession Chinese
consumers are buying fewer Apple's
iPhone and also Tesla's electric vehicle
which made the two of them much more
less magnificent and these two companies
are also facing much more competition
from Chinese producers producing similar
consumer goods and therefore the share
price has also reflected this economic
reality so in this video I will attempt
to rank the mech 7 based on a few
in-house chosen criteria such as the
quality of the business and the strength
of their economic mode their past
Financial track record future outlook
and potential and of course most
importantly the current valuations so
just a disclaimer this ranking exercise
is not meant to be prescriptive and
please exercise your own analysis and
Judgment at the end of the day so with
that out of the way let's get right into
our framework so let's look at these two
key components when trying to determine
their rankings qualitative versus
quantitative approach so qualitatively
how is the business doing are they
fending of their competition well are
they able to earn above industry margins
and more importantly are they able to
keep these profits and how sustainable
the profits are quantitatively how have
they been performing Over The Last 5
Years how are their financial ratios and
balance sheet looking if we do a
modeling to project our future cash
flows are they trading at a fair
valuation so I believe many investors
tend to look at these two factors as
opposing ends and they liely on a
spectrum intuitively if you think about
it a lowquality business will tend to
trade at a cheaper valuation and vice
versa so that's why they are on opposing
skills and that's what I'll try to
establish when we are looking at the
individual Max seven names so I'll be
giving each of them a score of 1 to 10
with one being the lowest and 10 being
the highest or the best and it will also
be a score Blended across different
factors and this is how it will
generally work so I'll be placing more
emphasis on the quality of the company
based on the simple 8020 heru so 80% of
the score will be determined by the
quality aspect of the analysis while 20%
will be determined by their numbers and
valuations it's trading at today so in
this specific 80% breakdown we will take
into account the consistency of the
margins comparing it to Industry
averages and also more importantly our
opinion of whether the business has a
wide narrow or even low economic mode
essentially this is the long-term view
of whether the business would be
disrupted in the next 5 10 10 or even 20
years so in the other 20% I think I'll
keep it simple by using a blended
approach using various valuation methods
such as PE forward PE price earnings
growth and even a discounted cash flow
so now let's go down the list first
let's take a look at alphabet the parent
company of Google so intuitively we
would expect alphabet to score very high
on the quality aspect and alphabet
currently owns two of the most important
properties on the internet SE and
YouTube they essentially have a brand
Monopoly and when the company's product
is used as a verb I think it speaks
volumes of how strong and recognizable
the brand is they benefit immensely from
Network effects particularly in their
search engine and also advertising
creating a perfect Lo from data
collection to training the algorithms to
improving the user experience and most
importantly delivering the right results
to meet the user's need it's a
self-reinforcement cycle so their
current scale has also enabled them to
reap huge advantages specifically on
creating extremely high barriers to
entry enabling them to monopolize the
search Market even until today however
the Outlook of Google search has started
to seem murky with the proliferation of
check GPT and large language models
alike at the end of 2022 so we have made
a separate video outlining the risk and
concerns about the future of Google
search and you can hit over for a more
detailed explanation so search is
currently under intense scrutiny given
the potential shift and how users
retrieve data in the coming future so
before GPT I would have given alphabet a
solid eight right now I think we can
only settle with a six for Quality so
for Google's current valuations I
believe it's undemanding in fact out of
the Mac 7 counterparts regardless of how
you slice and dice it whether is it on a
forward PE on a PEG ratio its valuations
is one of the lowest out of the seven so
using our in-house investing tool the
True Value Finder we estimate the
intrinsic value of Google to be right
between $160 to
$180 therefore we think that alphabet
deserves an eight for valuation it being
pretty attractive which means that
alphabet has a blended score of 6.4
second let's talk about Apple so Apple
was always the darling of Wall Street
maybe because of Warren Buffett but it
has been one of the most respected and
well-run Enterprises the world has ever
seen brand Monopoly Customer Loyalty
High switch cost barriers to entry
economies of skill you name it Apple has
it so the problem today Apple's
complicated relationship with China so
not only do they rely on China for their
production capacity but they too rely on
their domestic demand which makes up
around 20% of their sales so considering
the state of global Affairs currently
apple is balancing on very tight rad
just recently it was announced that
Apple sales in China dropped 24% in the
first 6 weeks of of 2024 compared to the
same period in 2023 so the iPhone market
share in China has also sleep to 16% in
2024 falling to Fourth Place compared to
the second place in 2023 when they had
around 19% market share so it's true
that apple is still able to charge
premium prices for their products due to
the perceived brand quality but this
important Chinese pie is shaking the
entire boat so for this I will c a seven
to Apple's quality so from a valuation
perspective apple is definitely trading
at a premium valuation when compared to
the overall large cap index but really
to what extent is it Justified so
according to our calculations we think
that Apple's IV should be right around
160 to 170 and even after the recent
fall it's still right around fair value
therefore I would think that a score of
fall would be suitable which means that
Apple alongside alphabet also has a
blended score of 6.4 third Microsoft so
Microsoft is probably one of the
strongest businesses we have seen in
this decade king of software a portfolio
across hardware and software gaming
cloud and even artificial intelligence
now with cat GPT and big so some will
see investing in Microsoft as being
equivalent to buying into an ETF
exchange Trader fund due to its
Diversified nature Microsoft is always
on the offense from the blizzard
acquisition in the gaming division to
the partnership with open Ai and going
after the launch of rival tech companies
like Google I think there's not much to
argue here Microsoft's quality will be a
solid nine so why not 10 you might ask I
guess it's just the Asian Gene in me my
parents always told me since young you
can do better so let's hold back the
last point so that Microsoft doesn't get
too ahead of themselves on the valuation
front we think that they might be
slightly overextended so I understand
why everyone wants a piece of this pie
which explains the premium valuation
they're currently trading in therefore
we'll give Microsoft a valuation score
of three bringing its Blended score to a
7.8 fourth meta platforms so both Mark
Zuckerberg and meta platforms had been
through a wild ride the recent runup
came on the heels of a 75% decline back
in 2022 from its peak due to a myad of
concerns from stagnating growth rates to
margin destructions to frivolous
spending on AR and VR and more
importantly a sure disregard for
shareholder value at least that what
most bears were arguing for in the
better part of 2022 so Zuckerberg has
came out to clarify in multiple earning
score that a majority of their
Investments are into the AI capabilities
of the Legacy business namely Instagram
WhatsApp and Facebook iterating and
building on their existing ads
architecture and more importantly
innovating their way out of the new
Apple updates which heavily restricted
the ads targeting so moving forward we
are very optimistic about Matter's
contined push for innovation in their
discovery engine and also their open-
Source large language model that uses AI
to generate text images and quotes
essentially equipping their merchants
and customers alike with the tools that
they need to level up their reach and
also their scale at meta's current stage
I think seven is a conservative estimate
of their quality on the valuation side
we think that meta is worth right around
$420 to
$450 hence tagging them with a score of
three at their current price tag of near
$500 per share bringing meta's Blended
score to a solid
6.2 five Amazon fundamentally we see
Amazon's business turning around the
corner coming out gradually from its
investment cycle so we look forward to
Amazon continuing to optimize the cost
structure and exit from the heavy Kack
spending era so Logistics is an
extremely tough business and Shopify
acknowledges that too they have
completely sold out Shopify Logistics to
flx sport last year however from a mode
building perspective Amazon has only one
goal in mind which is to satisfy the
current customers therefore given its
current positioning Amazon has managed
to amess some of the highest quality
customers with Amazon Prime providing
top-notch experience enabling them to
maintain their lead in e-commerce and
grow their advertising arm aggressively
so let's also not forget about the crown
jeo AWS so Amazon web services enjoys a
a durable and profitable Network effect
as more applications are built the
system attracts new developers as that's
where customers and datas are add which
then generates more data and application
creating more value for customers so
this network effect is further
compounded as they scale and retain the
customers due to the high switching cost
so given the multiple engines of growth
from e-commerce to advertising to Cloud
to Logistics each compounding on one
another's strength we do see Amazon as
having a very very strong foundation for
the growth in the decades ahead awarding
it a quality score of eight so when
looking at Amazon's valuation using a
sum of the parts model we do find Amazon
competitively priced with a small margin
of safety at current valuations of right
around $170 per share hence we do think
the Amazon is fairly priced giving it a
valuation score of six which means that
its Blended score is sitting at around
7.6 number six Tesla so like it or not I
will end up offending one group of
investors by having an opinion on this
company so I'll Trad extremely carefully
so Tesla has had phenomenal success and
execution over the last few years so the
stock price aside I think the company
has executed superbly so to understand
Tesla's valuation today it really
depends on how you see the future of the
company on the bearish side if you view
Tesla as solely a car company today's
valuations might look a little lofty as
they sit at a price to sales of around
five to six times while comparable
companies like Toyota Ford and GM they
have a price to sales ratio of3 to one
times however if you to ask the Tesla BS
they will be showing you the other side
of the story where the car is
essentially just a trojan horse for
Tesla to sell you something better like
full self-driving to energy to even
robotics in the future arguably Tesla is
right at the start of multiple as curves
as they claim so while I do believe that
Tesla is working on exciting projects
and Elon Musk is someone who we wouldn't
want to bet against but I still prefer
to air on the side of conservatism so
for now it seems like many of these
exciting projects stay exciting but its
potential profits require quite a bit of
imagination so I do see the strength of
Tesla's brand Advantage charging
infrastructure and more importantly its
manufacturing capabilities so a quality
score of six should be fair however on
the valuation front that's really up to
debate like previously mentioned it
really depends on where you see Tesla's
future is so to us Tesla definitely feel
a little too pricey for liking and
considering the circumstances of the
Chinese supply chain demand and
competition we don't think we can
justify a high valuation for Tesla here
therefore we think that they would bring
a valuation score of right around two
bringing its Blended score to be 5.2 and
last but but not least number seven it's
everyone's favorite in this AI boom
Nvidia so when talking about Nvidia
you'll probably meet two different
groups of investors so one group
completely writes them off as they
cannot make sense of the current
valuations using a real view mirror when
looking at the Historical earnings
meanwhile the other group is extremely
optimistic about the future of AI gpus
and the software Hardware integration of
Nvidia crowning it the iPhone moment for
NVIDIA
so truth be told I'm somewhere in
between so I don't think we should throw
the baby out with the bath water so I've
watched and listened to many intelligent
investors making their case for
investing into it today so reasons
ranging from Superior Hardware and
software integration to phenomenal fight
in the fores before the competitors into
both crypto and Ai and of course how
groundbreaking and instrumental this AI
wave would be in the coming decades so
the bigger question is how sustainable
the pace of trip buying can be and also
will the total addressable Market be big
enough for NVIDIA to grow into to
justify today's valuations and on top of
that require a good rate of return so in
terms of quality I think there's no
doubt no competitors actually come close
to what Nvidia can offer giving them a
solid it on the quality aspect for
valuations however it's really a while
guess we do think that large part of the
valuations were carried by momentum and
right now it's to half appeal to swallow
therefore I think that investors should
be cautious when entering at today's
valuations so personally I want to give
it a one but let's settle with two
bringing nvidia's Blended score to be
6.8 so after listing Company by company
this is the final ranking of the mech 7
based on the Blended scoring system so
with Microsoft being the first and Tesla
being the last so feel free to agree or
even disagree in the comments down below
but to our viewers who are extremely
bullish on Tesla and I know that there's
a large group of you out there hold your
horses I can already feel the criticisms
coming our way FBI open up so here's the
thing if to only judge based on
valuations and quality that is just two
Dimensions so to further expand the
discussion I'll introduce a third
dimension which is the company's
potential or some of you might actually
call it the W Factor so I'll basically
apply a multiplyer to the score which
acts as some sort of a b bonus to give
you a more complete expectations of the
company's Outlook I've applied the
highest multiplier to both Nvidia and
Tesla because they have the most
exciting Outlook and potential out of
the Mac 7 punch from Full self driving
to robotics to even AGI artificial
general intelligence that's it I'll just
like to remind everyone that this
ranking is not prescriptive and it is
just my opinion of the company in
today's market environment and of course
potential will stay as potential if
they're unable to execute and convert it
into profits and cash flows in the
future so if you're interested in how we
get our intrinsic value calculations of
these different companies ban profits
has a powerful tool that helps you
discover the right prices to enter into
these stocks so check out our True Value
Finder to find undervalued deals in the
link below now so this is CK from pan
profits signing off until next time keep
winning
[Applause]
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