Are the Magnificent Seven overvalued?

Tech stocks have been in vogue for most of the last decade, and the ‘Magnificent Seven’ in particular have been the stock market’s shining stars since ChatGPT launched in November 2022.

These seven stocks, viewed by many as being at the forefront of the artificial intelligence (AI) boom, have been among the most-bought stocks for most of that period.

At the start of 2023, the seven tech companies comprised approximately 20% of the S&P 500 between them. Now, they make up a third (33%) of the index.

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That dominance of the stock market means that even beginner investors will have a lot of exposure to these companies through stock market trackers. Those who don’t invest actively will still have a lot of money riding on the Magnificent Seven stocks through their pension.

But optimism surrounding these stocks is starting to wobble. Nvidia’s shares fell last week following its earnings report, despite beats on earnings and revenue, as investors that have grown used to the chipmaker consistently posting knockout results were underwhelmed.

“The Mag 7 are continually investing enormous amounts of cash into AI, but their efforts aren't all attaining the same results,” said Michael Field, chief equity strategist at Morningstar. “Year to date only three of the seven have seen materially positive share price performances, namely, Nvidia, Microsoft and Meta.”

The longevity of the AI boom itself has also been called into question recently. Sam Altman, CEO of OpenAI, called the market a “bubble” during a media dinner in August. A report from MIT released in the same week also revealed that despite tens of billions of dollars having been spent by businesses on generative AI projects, 95% of companies haven’t seen a return on their investment.

Is the AI megacap bubble about to burst, or are the Magnificent Seven still an unmissable opportunity?

Magnificent Seven results

The positive case for the Magnificent Seven is that they have been the biggest drivers of earnings growth in the stock market throughout their ascendence, largely thanks to them capturing the major tailwinds of the AI boom’s early stages.

In the second quarter of 2025, the Magnificent seven reported year-over-year earnings growth of 26.6% according to analysis from FactSet. Four Magnificent Seven stocks (Nvidia, Amazon, Meta and Microsoft) were among the top six contributors to earnings growth within the S&P 500 during the quarter.

While the group’s average earnings growth rate is impressive, it reflects a slowdown from the 31.0% that the group has averaged over the previous four quarters. The group as a whole tends to trade on high earnings multiples, reflecting market expectations for outsized future earnings growth many years into the future. A slowdown in earnings growth undermines this assumption.

Not all the Magnificent Seven delivered the same level of earnings growth last quarter either. Who were the winners and losers?

Alphabet

Google’s parent company delivered results that impressed without blowing away the market.

Alphabet delivered earnings per share (EPS) of $2.31, up 22% year-on-year, and revenue of $96.4 billion, beating analyst expectations on both fronts.

Google Cloud revenue was a particular highlight, growing 32% to $13.6 billion. Google Search revenue rose 11.7% to $54.19 billion, well ahead of analysts’ expectations and acting to reassure the market that Google’s core business line is still posting healthy growth despite rising competition from AI search.

Alphabet shares initially dipped when the results were released but ended after-hours trading up 2.3%.

Amazon

Amazon’s results disappointed investors, despite posting EPS of $1.68 compared to the $1.33 that analysts had forecast.

While the company beat on earnings, revenue growth of 17.5% in Amazon Web Serves (AWS), the company’s key cloud division, lagged behind what rivals Google and Microsoft’s Azure had already posted.

Amazon’s share price fell more than 7% in after-hours trading following the results.

Apple

Once the world’s most valuable company, Apple has lagged behind its Magnificent Seven colleagues this year; shares in Apple have fallen 7.3% in the year to 29 August.

Apple faces two dual challenges. Donald Trump’s isolationist trade policy is a severe threat to its globally interconnected supply chain. More damningly, there is a widespread market perception that it is well behind the curve on leveraging AI.

But Apple’s results gave some positivity. Apple’s shares gained around 2% in after-hours trading following their release.

Revenue of $94.0 billion represented 10% year-on-year growth and a record for Apple’s June quarter, while EPS rose 12% to $1.57, comfortably beating analyst expectations for both metrics.

“While the overall performance was solid, there were a few headwinds that muted the impact, particularly in China, which showed further signs of weakness,” said Ben Barringer, global technology analyst at Quilter Cheviot.

“On the positive side, Apple’s services division continues to perform well, growing 13% year-on-year and reinforcing its importance as a key driver of future growth.”

Meta

Of all the Magnificent Seven results announced in the latest round, Meta’s saw the greatest share price reaction.

Meta’s stock jumped 12% in after-hours trading following a huge earnings beat. EPS increased 38% year-on-year to $7.14 – analysts having forecast $5.90 – as Meta’s big spending on AI appeared to deliver on bottom-line profitability.

“Meta is in somewhat of an AI sweet spot just now, offering services to both consumers and businesses,” said Barringer.

Microsoft

At the same time as Meta released its bumper results, Microsoft also wowed investors with EPS of $3.65 (up 24%) and revenue of $76.4 billion. The highlight was the growth in demand for Azure, its cloud computing platform, which rose 34% year-on-year.

“Microsoft crushed it,” said Lale Akoner, global market strategist at eToro. “Cloud growth picked up speed, AI tools are gaining real traction and profits beat expectations.”

Microsoft shares reached a high of $555.45 during the following session which was enough to push its market cap above $4 trillion for the first time in its history. But shares closed the session at $533.50, bringing it back below the threshold.

Nvidia

Despite earnings and revenue beating analyst expectations, rising 56% and 54% respectively, shares in Nvidia fell following its Q2 earnings release.

Revenue from Nvidia’s key data centre division fell shy of market expectations, at $41.1 billion compared to $41.2 billion.

Additionally, the status of the company’s critical China export market appears uncertain, with US-China trade relations restricting exports. Nvidia reported no sales to China during the quarter and issued forward guidance that assumed none during Q3.

Shares in Nvidia fell 0.8% on 28 August, the session following the results.

Tesla

Tesla’s fundamentals were guaranteed to be poor long before the results were released, as the company announces its delivery numbers around three weeks before its full results.

Tesla’s fundamentals were guaranteed to be poor long before the results were released, as the company announces its delivery numbers around three weeks before its full results.

So investors were already braced for the decline in sales (down 12% year-on-year to $22.5 billion) and EPS (down 23% to $0.40).

Tesla’s share price slumped in after-hours trading all the same.

CEO Elon Musk, usually renowned for his bullishness and ability to charm investors in the face of adversity, warned that the company could face several “rough quarters” as the incentives from Joe Biden’s electric vehicle mandate unwind.

Tesla’s stock has fallen 17.3% in the year to 29 August 2025.

What are the Magnificent Seven stocks?

The Magnificent Seven – often abbreviated to ‘Mag7’ – comprises seven big tech stocks that the investing community perceives as being the leading exponents of technology in general and artificial intelligence (AI) in particular.

They are:

• Alphabet (NASDAQ:GOOGL) – the parent company of Google, as well as other companies such as the AI developers DeepMind and Anthropic;
• Amazon (NASDAQ:AMZN) – originally an online bookstore, now a giant of e-commerce and cloud computing via Amazon Web Services (AWS);
• Apple (NASDAQ:AAPL) – the tech hardware company that brought the world the MacBook and the iPhone;
• Meta (NASDAQ:META) – formerly Facebook, the company is now heavily focused on ‘Metaverse’ technology as well as AI products, like the Llama model;
• Microsoft (NASDAQ:MSFT) – the computing giant behind the Windows operating system and the Azure cloud platform;
• Nvidia (NASDAQ:NVDA) – the hardware developer that pioneered GPUs, the chips that power AI data centres;
• Tesla (NASDAQ:TSLA) – the electric vehicle (EV) manufacturer that launched its long-awaited self-driving car service in Austin, Texas this year.

The term ‘Magnificent Seven’ was coined by Bank of America analyst Michael Hartnett in 2023. By then, the group was already starting to dominate the stock market in the wake of the AI and tech stock mania that followed the public launch of ChatGPT in late November 2022.

While most of the group are highly diversified (Amazon is an e-commerce company as well as the world’s largest cloud services provider; Alphabet makes phones, self-driving cars and owns YouTube in addition to its cloud computing division and its core internet search business), AI is their unifying feature as a group.

Some (like Nvidia) sell the hardware that underpins AI, or the cloud services on which models are trained and distributed (Amazon, Microsoft and Alphabet hold a 60% share of the global cloud market between them). Others develop AI platforms, such as Meta’s Llama or Microsoft’s Copilot, or integrate ‘physical AI’ into robotics and self-driving cars (especially Tesla).

They are stock market behemoths; all have a market capitalisation (market cap) over $1 trillion as of 29 August.

Are the Magnificent Seven overvalued?

Investors pay a premium for the earnings growth power of the Magnificent Seven stocks; most of them trade at earnings multiple above those of the broader market thanks to their position as figureheads of the AI boom.

“AI is likely to be as transformative as the internet, the computer, trains or even electricity,” says Andrew Oxlade, director, personal finance and markets at Fidelity International. “The question is not whether it matters, but whether today’s winners justify their share prices. History suggests that in every great innovation cycle, investors get carried away.”

The table below shows the price of these stocks relative to their earnings over the last 12 months (trailing) and analysts’ projections for the next 12 (forward).

^{Sources: *Yahoo Finance as of 29 August 2025. ^Birinyi Associates analysis via Wall Street Journal as of 29 August 2025.}

At present, Alphabet is the only Magnificent Seven stock whose valuation, based on forward P/E, is below that of the S&P 500 average. Alphabet, Meta and Apple are all priced below the average P/E ratio of the NASDAQ 100.