By Angela Palumbo

The Magnificent Seven technology stocks aren't shining as brightly as they once did, but there is plenty of time for them to make a comeback by year-end.

The seven stocks -- Apple, Amazon.com, Meta Platforms, Microsoft, Alphabet, Tesla, and Nvidia -- provided much of the fuel for the market's jump early this year. Investors excited by the potential for huge gains linked to generative artificial intelligence rushed to buy.

But now, that enthusiasm has faded. Five of the seven stocks are now lagging behind the S&P 500, even though since they began trading publicly, all of those shares have been more likely to beat the index than underperform it, according to Dow Jones Market Data.

Nvidia and Meta -- up 160%, 67%, respectively, so far this year -- are the only Mag 7 stocks that are beating the index's 20% gain. Apple, Microsoft, Alphabet and Amazon were up 16%, 9.9%, 18%, and 19% in midday trading Monday. Tesla has fallen 1.5% this year.

All that reflects how the market has changed relative to just a few months ago.

Part of the story is that while the biggest tech companies have been spending heavily on generative AI, some investors are concerned they won't see a return on those investments for quite some time. It isn't entirely clear whether companies that might use AI in their businesses will find the technology useful enough to pay for Big Tech for it.

Shares of both Microsoft and Alphabet, Google's parent, took a hit after the companies released their earnings over the summer. Partly because of concerns about heavy spending on AI, investors decided to take profits from highly valued tech stocks and rotate that money into smaller-cap companies, which had lagged behind and were seen as having more room to rise as the Federal Reserve cuts interest rates.

Individual Mag 7 companies are also facing their own headwinds. For example, demand for Apple's iPhone 16 has been a major topic for debate as Wall Street tries to gauge when, or whether, the rollout of AI features will give the smartphone maker a much-needed boost in sales. A Jefferies analyst highlighted those concerns on Monday, downgrading the stock to Hold from Buy. The stock has now dropped 4.6% from its 2024 closing high of $234.82 on July 16.

Three areas of concern are weighing on Alphabet. First, there is the concern that it could take a long time for the company to benefit from its enormous spending on AI. Second is worry about what remedies a judge might order after ruling in August that Google maintained a monopoly in general search services and general text advertising. Increasing competition as more AI companies come out with their own search engines is the third challenge. Shares have fallen 14% from their 2024 closing high of $191.18 on July 10.

All of these Mag 7 stocks still have time to bounce back. Tesla has its Robotaxi Day on Thursday, which has the potential to reinvigorate investor excitement about the future of the electric-vehicle maker in an increasingly competitive environment. Plus, all seven companies report their earnings before the end of the month. Better-than-expected financial forecasts would go a long way toward boosting the stocks.

The year isn't over yet.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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

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October 07, 2024 13:06 ET (17:06 GMT)

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