MW 'Magnificent Seven' stocks hit another milestone. Here's why they could continue to dominate in 2025.

By Joseph Adinolfi

Big Tech companies are expected to see earnings growth continue in the new year

Christmas has come early for the Magnificent Seven.

As of Wednesday's close, the group of megacap tech companies has seen its collective valuation surpass $18 trillion for the first time ever, according to Dow Jones Market Data. That means their shares are now worth more than the annual gross domestic product of every country in the world with the exception of the U.S. and China.

And if the latest earnings estimates from Wall Street analysts turn out to be accurate, there is reason to expect that these companies' dominance of the global stock market can continue in 2025.

An extraordinary run

As the summer turned to fall, Big Tech stocks appeared to finally take a back seat to other, lagging corners of the market.

But in the five weeks since Donald Trump's victory in the U.S. presidential election, shares of these companies have come roaring back, led by a nearly 70% advance in Tesla Inc. through Wednesday.

Shares of four members of the Magnificent Seven cohort - Tesla $(TSLA)$, Amazon.com Inc. $(AMZN)$, Alphabet Inc. $(GOOGL)$ and Meta Platforms Inc. $(META)$ - finished in record territory on Wednesday. The other members of the group are Nvidia Corp. $(NVDA)$, Apple Inc. $(AAPL)$ and Microsoft Corp. $(MSFT)$.

Their gains have helped propel the Roundhill Magnificent Seven ETF MAGS up nearly 10% since the start of December, according to FactSet data. With 12 trading days remaining in December after Thursday, the exchange-traded fund is already on track for its biggest monthly gain since February.

The staggering advance for these stocks in December has coincided with weakness elsewhere in the market. A team of analysts at Bespoke Investment Group pointed out that Wednesday marked the eighth straight session in which the number of S&P 500 stocks trading lower surpassed the number trading higher.

2025 looks promising

Some investors are concerned that this torrid pace of appreciation has left these tech companies overvalued and vulnerable to a pullback.

On an equal-weighted basis, the Magnificent Seven members are currently trading at 40 times their expected earnings over the next 12 months, according to Dow Jones Market Data.

That average figure masks a wide range, from 21.9 times for Alphabet at the low end to 128.5 times for Tesla. By comparison, the entire S&P 500 is currently trading at roughly 22 times forward earnings.

High valuations mean companies are prone to selloffs if their earnings disappoint. But as Venu Krishna, head U.S. equity strategist at Barclays, told MarketWatch, analysts expect that these companies will continue to grow earnings more quickly than most of their peers in the S&P 500 next year - although his assessment excludes Tesla.

In the past, these companies have typically surpassed Wall Street's projections, often by wide margins. Krishna expects they will ultimately beat analysts' expectations once again in the new year.

"Even though we expect Big Tech earnings growth to moderate, it will still settle at very healthy levels and significantly above the rest of SPX," Krishna said during an interview with MarketWatch, using the ticker symbol that refers to the S&P 500.

Of course, there are always risks. Apart from valuations, growing scrutiny of these firms' heavy investment in artificial-intelligence capabilities could create problems in the new year, as could an uptick in regulatory scrutiny, Krishna said.

"That said, they're still in a very strong position," he added.

Others are somewhat more cautious on the prospects for these stocks.

During an interview on CNBC on Thursday, Jeremy Siegel, a professor of finance at the University of Pennsylvania's Wharton School, remarked on the incredible run the Magnificent Seven has been on since the start of December.

"The surge in the Magnificent Seven over the last seven or eight days has been incredible," he said, adding: "Some of that enthusiasm for some of those stocks very well might unwind next year."

U.S. stocks were sliding on Thursday, with the S&P 500 SPX down 24 points, or 0.4%, at 6,059, while the Nasdaq Composite COMP was off by 95 points, or 0.5%, at 19,933.

The Dow Jones Industrial Average DJIA was off by 228 points, or 0.5%, at 43,921. Most of the Magnificent Seven names were heading for a loss on Thursday, with the exception of Microsoft and Apple.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 14, 2024 09:21 ET (14:21 GMT)

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