Why Nvidia is the most magnificent of the ‘Magnificent Seven’

These days, we hear a lot less about the Magnificent Seven tech companies and their eight stocks than we heard last year after Michael Hartnett, the chief investment strategist at BofA Securities, tossed out “Magnificent Seven” as a throwaway line. Hartnett is a fan of the 1960 Western by the same name that stars Steve McQueen and Yul Brynner that features a lot of action. It’s a gunslinging version of Wall Street, so to speak.   And even though we aren’t hearing quite as much about the Mag Seven as a collective group these days, they still have magnificent collective numbers. Let me show you, using numbers that Wilshire Indexes sent me. The FT Wilshire 5000 Total Market Index, a market-cap weighted index of thousands of stocks, is intended to represent the entire stock market. I prefer the Wilshire to the more commonly used S&P 500 index for measuring the Magnificent Seven’s impact because the Wilshire, which tracks 3,334 U.S.-traded stocks, is a much broader indicator than the S&P, which tracks 503 stocks.  Because market caps of the Magnificent Seven companies are so large, they collectively represent 27% of the FT Wilshire 5000 Total Market Index. But they represent an even greater portion of the index’s 20.1% return so far in 2024. Through the end of last week, those stocks account for more than 40% of that return.  Sure, this year’s numbers for the Seven aren’t as magnificent as last year’s, when the Seven accounted for just over 50% of the Wilshire’s return, more than double their combined 24.4% weight in the index. But this year’s numbers are nothing to sneeze at. The most interesting part of this year’s Mag Seven numbers is the huge role played by a single stock: Nvidia. Nvidia’s outsized contribution to the Wilshire’s return this year is yet another example of how Nvidia shares (Nasdaq: NDVA) have been making tons of money not only for the investors who own it but also for those of us who own it indirectly through the S&P 500 and total stock market index funds.  The Wilshire rates stocks based on their market value changes, not on share price changes the way the Dow Jones Industrial Average (DJI) does. And Nvidia’s contribution to the Wilshire’s return this year is more than triple its Wilshire weight.  Through the end of last week, Nvidia, whose weight is 5.3% of the Wilshire, accounted for an astounding 19% of the Wilshire’s total return so far this year. (Total return is price changes plus reinvested dividends.) Talk about punching above your weight. Nvidia’s contribution to the Wilshire’s return is more than triple the contribution of the second-largest Mag Seven stock, Apple (Nasdaq: AAPL). In fact, if you look at Apple in the table above, you see that unlike Nvidia, Apple is punching below its Wilshire weight. It has contributed 5.7% of the Wilshire’s 2024 return—but its weight is about 6% of the Wilshire. Last year’s other big winner, Microsoft (Nasdaq: MSFT), is also punching below its weight this year. It accounts for 3.2% of the Wilshire’s return, not much more than half its 5.5% weight. This year, no fewer than four of the Mag Seven—Alphabet (Nasdaq:GOOG/GOOGL) and Tesla (Nasdaq: TSLA) in addition to Apple and Microsoft—are punching below their Wilshire weights. Meta, which has a weight of 2.4% and accounts for 3.3% of the gain, is the only Seven member other than Nvidia to be punching significantly above its weight.  To be sure, Amazon is punching above its weight—but not by that much. It’s contributed 3.3% of the return and has a weight of 3.2%. Compare that to last year, when all of the Mag Seven punched way above their weight (see chart below), which is how the Seven came to account for more than half the Wilshire’s total 26.1% return in 2023.  And unlike this year, in which Nvidia is by far the most dominant player, last year’s two biggest gain contributors—Microsoft and Apple—accounted for 10.4% and 10.3%, respectively. Although Nvidia’s 8.5% piece of the gain wasn’t all that far below the two leaders. That relatively narrow spread among the biggest contributors is unlike today’s numbers, which Nvidia dominates.  So while it’s still fun to track the Magnificent Seven—thanks again to Mike Hartnett for tossing the name into the Wall Street discussion—it’s less fun than last year, when all Seven were soaring. But the numbers show just how important to the stock market Nvidia has become. (And how hard it can be to diversify your portfolio these days.) Even so, the Mag Seven’s performance is well worth keeping an eye on. It will be interesting to see how long Nvidia can keep wildly outperforming the Other Six.