Wall Street eyes new leaders beyond the Magnificent Seven as AI trade expands

The "Magnificent Seven" stocks—Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla—have significantly driven market gains, but new emerging players like Broadcom, Oracle, and Palantir are gaining attention in the AI investment landscape.

Analysts are proposing new groupings of AI-related stocks, including a "Fab Four" and a "Big Six," as the performance of the original Magnificent Seven shows variability, with companies like Apple and Tesla lagging behind.

Companies such as Oracle and Palantir are making headlines with substantial stock gains, indicating that as AI technology evolves, new frontrunners may emerge despite the ongoing success of established firms.

The market dynamics surrounding AI investments are shifting, with concerns about the stability of concentrated investments in a few high-performing stocks, suggesting that leadership may soon change as AI adoption broadens across industries.

Recommendation Rating: Emerging Leaders in AI Stocks

Almost three years have passed since ChatGPT sparked a revolution in artificial intelligence, and the “Magnificent Seven” stocks that led the market surge—Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG, GOOGL), Amazon (NASDAQ: AMZN), Meta (NASDAQ: META), and Tesla (TSLA)—may no longer represent the full scope of AI investments, according to a recent report by Bloomberg News.

These companies have driven over half of the 70% gain in the S&P 500 since early 2023, yet new contenders are emerging. Firms such as Broadcom (NASDAQ: AVGO), Oracle (NYSE: ORCL), and Palantir (NASDAQ: PLTR) are gaining recognition as pivotal players in the AI landscape, raising the question of whether the original Magnificent Seven continue to epitomize market leadership.

Chris Smith, a portfolio manager at Artisan Partners, contends that past dominance in sectors like mobile and e-commerce does not guarantee success in the AI realm. He suggests that the future leaders will likely be those companies that tap into expansive markets with their AI innovations.

The performance of the Magnificent Seven has started to vary. While Nvidia, Microsoft, Alphabet, and Meta have shown impressive growth this year, Apple, Amazon, and Tesla are falling behind. In light of this disparity, analysts have proposed alternative groupings, including a “Fab Four” focused on core AI initiatives, a “Big Six” that excludes Tesla, or even an “Elite Eight” that incorporates Broadcom.

Several other companies are also making headlines. Oracle’s stock has surged over 75% this year, largely due to growth in its cloud offerings, while Palantir has emerged as the top performer in the Nasdaq 100, with its stock more than doubling. Fidelity’s Jurrien Timmer emphasizes that as AI technology continues to develop, new frontrunners may emerge despite the ongoing success of established players.

The trend of categorizing stocks into memorable groups has a long history on Wall Street, evolving from the "Nifty Fifty" to FAANG. In this context, the Cboe has recently introduced futures and options tied to a “Magnificent 10” index, which includes Broadcom, Palantir, and AMD (NASDAQ: AMD) along with the original seven; however, this index notably overlooks Oracle, despite its strong performance.

Some analysts express concern about the future of companies like Apple and Tesla. Apple is perceived as lagging in AI advancements, while Tesla faces potential declines in electric vehicle demand. Nonetheless, both companies maintain dedicated investors who are optimistic about their prospects for breakthroughs in devices and autonomous technology. Additionally, firms like TSMC (TAM), Arista Networks (NYSE: ANET), and Micron (NASDAQ: MU) are increasingly recognized as essential components of the AI ecosystem.

As the adoption of AI technologies expands from foundational infrastructure to broader applications across various industries, market leadership may undergo another transformation. Timmer warns that investments concentrated in a few high-performing stocks may end abruptly; thus, the era dominated by the Magnificent Seven could transition into a more gradual rotation or potentially a more abrupt shift, as highlighted by Bloomberg News.