They call them «The Magnificent 7». They too, like the protagonists of the western film, ride the frontier, but that of the technologies that dominate the 21st century. Artificial intelligence, electric cars, e-commerce, big data, social media are their hunting grounds. What unites them, in addition to their passion for hi-tech, are two characteristics: they tend to dominate their respective markets and they are big, very big. Not so much in terms of turnover, but in terms of stock market value. The Magnificent 7, namely Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Tesla and Nvidia, the latest arrival, have reached dizzying prices and their overall capitalization is around 18 trillion dollars. A gigantic number that represents more than a third of the value of all the securities listed on Wall Street (around 50 thousand billion) and even 15 percent of the entire universe of shares traded worldwide. These are figures that also require another reflection: that is, how much bigger the New York Stock Exchange is becoming, the place where any company on the planet would now like to list and where savings flow from all over the globe. So much so, as revealed by an analysis by Deutsche Bank, that the value attributed to the Magnificent 7 is so high that it is comparable to the stock markets of nations such as Japan, France and the United Kingdom. To give an idea of what size we are talking about, with a capitalization of 3,800 billion, Apple alone is worth four times the Italian stock market.
Let these heavy elephants roam the glass factory undisturbed on Wall Street is starting to worry analysts and managers. Over the last 30 years, the incidence of the first seven stocks on the S&P 500 index of the New York Stock Exchange has been 16.5 percent while today it is 36 percent, the historical maximum in terms of concentration in such a small number of society. Even at the height of the 2000s tech bubble, the top seven stocks accounted for 20 percent. Among other things, the 36 percent share achieved by the Magnificent 7 contrasts with their more modest impact on sales and earnings: they constitute only 11 percent of the turnover of all the companies in the S&P 500 index and 24 percent of total profits. «This record concentration represents a significant specific risk for investors’ portfolios» indicates a report by Bnl-Bnp Paribas. The problem does not concern so much the investment in individual securities: a saver who buys the share of a pharmaceutical or food company should not be very interested in the performance of an Apple or an Nvidia. But the great weight of the seven stocks on Wall Street is a threat for those who invest in indices, using the appropriate funds or ETFs. An excessive level of concentration can in fact increase the market’s vulnerability to possible corrections, as a significant decline in one of these stocks could have a disproportionate impact on the entire index. It’s true, admits Alessandro Parravicini, highly experienced manager and author of the book Jungle Guide. Investing: the most difficult way to make easy money, we are witnessing «an anomaly in the history of financial markets and could cause unexpected moments of volatility, especially through investment instruments such as ETFs, which agnostically replicate the composition of the indices and therefore the market trend”. There are around thirty ETFs (Exchange traded funds) that “copy” the S&P 500 index or the Nasdaq 100, they are very popular and present in the portfolios of millions of savers. Those that replicate the New York Exchange in particular boast assets of over 1,800 billion dollars. In the first six months of this year, the Bnl-Bnp Paribas analysts recall, “we witnessed 100 billion dollars in new inflows into just four ETFs listed in the United States and based on the S&P 500 or Nasdaq 100 indices”. It is clear that if the markets’ love for hi-tech stocks were to suddenly cool, the indices would suffer a disproportionate fall, damaging those who were convinced they had bet on a balanced instrument that brings together technology stocks with those of banks and companies traditional.
But let’s get to the crucial question: How much longer will the party for the Magnificent 7, for artificial intelligence-related stocks and for listed high-tech companies last? «As happens with all bubbles and “manias” in the financial markets, it is always dangerous to try to predict their end» we read in the Bnl-Bnp Paribas white paper. «History teaches us that these extreme trends can persist much longer than one might consider reasonable, due to the resilience of human optimism in such contexts». Talking about a bubble in this case is probably excessive, because Google, Apple, Tesla or Nvidia do different jobs in different sectors: a drop in iPhone sales is not guaranteed to infect those who make chips for artificial intelligence. But certainly the stock performance of these giants is impressive: in the last eight years the share prices of the Magnificent 7 have increased overall by 1,450 percent, or an average of 40 percent per year. «High market valuations» underlines the report «indicate optimistic profit expectations». In fact, the prices of the seven super-companies «have reached extreme levels with an estimated Price/Earning (i.e. the ratio between price and earnings, ed.) of 34. This is almost double the P/E of the remaining companies in the index S&P 500, which trade at a much more modest P/E of 19.”
It must however be said, replies Parravicini, «that the valuations of most of the Mag-7s are expensive but far from the levels seen during the “Dot-Com” bubble of 25 years ago and, unlike then, they are supported by real growth in profits and turnover» . And indeed, major banks and financial institutions recognize the growth potential of American technology stocks in 2025, but also highlight the need to consider the risks associated with high valuations and geopolitical uncertainties. And then there is always the risk of falling into the “hot hand fallacy”, as Nicolò Bragazza, associate portfolio manager at Morningstar Investment Management, recalls, that is, the tendency to think that winners must continue to win. And although it may work in some cases, “it is not a valid strategy for obtaining good long-term results.”
In other words, a saver could be tempted to invest in the Magnificent 7 after they have recorded great gains in recent years: why look elsewhere for investments when these stocks are doing so well? «This fallacy exposes investors to significant risks if sentiment reverses and winners become losers» specifies Bragazza. «And when it comes to artificial intelligence, even if no one doubts that it is a disruptive technology with the potential to radically change our daily lives, finding the main beneficiaries is very difficult and today’s winners may not be the biggest winners of tomorrow”. Conclusion: it is possible that the New York Stock Exchange and technology stocks, dragged by the Trump effect, the drop in rates and the beneficial effect of artificial intelligence, will continue to grow in 2025. But a well-diversified portfolio, perhaps with stocks with good growth prospects and more affordable valuations, it is the best insurance policy against the risk that the Magnificent 7 get tired of galloping and take a break.