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As artificial intelligence takes the world by storm, a new set of tech stocks are replacing FAANG: the "Magnificent Seven."
Many of the original FAANG stocks — Meta (formerly called Facebook), Amazon, Apple, Netflix and Alphabet (the parent company of Google) — show up on the list of the "Magnificent Seven." CNBC's Jim Cramer recently used the new tagline to describe Apple, Microsoft, Nvidia, Amazon, Meta, Tesla and Alphabet.
The craze around AI has helped push some of these tech stocks to all-time highs and driven the S&P 500 into a bull market. As of Thursday's market close, the stock of semiconductor company Nvidia is up around 192% for the year, while Meta has soared 134% in 2023 and Tesla, 108%. Apple, Microsoft, Amazon and Alphabet have all jumped more than 40% year to date.
The 'Magnificent Seven' stocks
Cramer coined the term "FANG" back in 2013 to describe hot, high-growth stocks. (Note that Microsoft, which has been a public company since the 1980s, wasn't included, and that Apple was added later, making the term FAANG.) But with a wave of excitement about new innovations and technology like the ones behind ChatGPT, the new "Magnificent Seven" name for the tech behemoths is catching on.
Michael Hartnett, investment strategist at Bank of America, for example, referred to the "Magnificent Seven" as the big seven "monopolistic U.S. tech stocks" in a research note in May. When discussing these seven stocks last month — and specifically Nvidia's run impressive run — Steve Sosnick, chief strategist at Interactive Brokers, wrote that "pricy stocks propelled by high expectations have more room to fall if those expectations aren’t met."
Concern for a tech-driven rally
If you invested in any of these seven stocks during the stock market's dismal 2022, which was plagued with the Federal Reserve's interest rate hikes and recession fears, you're probably cheering on their growth.
But some experts fear the fact that so much of the market's gains can be attributed to the tech sector may mean the rally isn't actually sustainable.
In a recent interview with Money, Liz Young, head of investment strategy at SoFi, said that the while it's possible "large cap stocks know something that the rest of the market doesn’t," it's also possible that the rest of the market doesn't have much momentum. Because of the inherent unpredictability in the markets, there's no telling how the "Magnificent Seven" and other tech stocks will fare in the rest of 2023 and beyond, either.
The stock market rally has broadened out in recent days, and Wall Street analysts continue to closely watch how sectors outside of technology perform. But for now, you'll likely be hearing a lot more of the seven tech giants and their new nickname.