Why Magnificent Seven Stocks Just Had Their Worst Day on Record
Alice Morgan / Investopedia
Key Takeaways
The Roundhill Magnificent Seven ETF suffered its largest daily decline on record on Wednesday.
Investors fled America's tech giants after earnings reports from Tesla and Alphabet raised concerns about the cost of artificial intelligence investments and the sustainability of the Mag Seven's blistering earnings growth.
Still, the group is expected to report that aggregate second-quarter earnings grew three times faster than the S&P 500 as a whole (30% vs. 10%).
The Magnificent Seven tumbled on Wednesday after earnings reports from Tesla (TSLA) and Alphabet (GOOGL) raised concerns about slowing earnings growth at America's tech titans.
Shares of the Roundhill Magnificent Seven ETF (MAGS) fell 6.1% Wednesday, their largest daily decline since the ETF launched in April 2023. Wednesday's rout plunged the index into correction territory.
The tech giants, which were cumulatively worth about $16 trillion as of Tuesday’s close, weighed heavily on the major indexes. The S&P 500 slumped 128 points, its biggest drop since September 2022; the Mag Seven accounted for approximately 85 of those points.
Tesla and Alphabet Earnings Disappoint
Earnings season got off to a rough start for the group Tuesday afternoon when Tesla missed quarterly earnings estimates. The electric vehicle maker reported a 45% decline in profit as artificial intelligence (AI) development costs increased and average vehicle sales prices declined. Tesla shares tumbled more than 12% Wednesday as Wall Street parsed the earnings and digested a delayed rollout of its robotaxi.
Spending on AI also sank Google-parent Alphabet’s stock on Wednesday despite it beating earnings estimates for the quarter. The company reported spending $13.2 billion on property and equipment in the quarter, nearly double the same period a year ago. CFO Ruth Porat warned on a call with analysts that capital expenditures would remain near that level for the remainder of the year. Alphabet shares fell 5%.
More Mega-Cap Earnings Coming Next Week
Microsoft (MSFT) is the next of the seven to report earnings, with its report slated for Tuesday afternoon. Meta (META), Apple (AAPL), and Amazon (AMZN) are also scheduled to report next week.
The Magnificent Seven is, as a group, expected to report earnings grew 30% in the second quarter, according to Bank of America analysts. That’s well ahead of the 10% rate forecast for the entire S&P 500, but it would make the group’s second consecutive quarter of slowing growth.
Even before Wednesday's slide, mega-cap tech names, which had powered broader market gains all year, had started to fall out of favor as investors rotated into shares of smaller companies that stand to benefit most from widely anticipated rate cuts by the Federal Reserve.
Despite the steep declines recently, all but one of the Magnificent Seven stocks are in positive territory for the year, with Tesla being the outlier.
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Update—July 24, 2024: This article was updated to reflect price changes at the market close.
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