Magnificent Seven's AI plays are losing investor interest

Julie Hyman , Madison Mills and Josh Lipton

Wed, Mar 6, 2024, 2:45 PM

Shares of Alphabet (GOOG, GOOGL), Apple (AAPL), and Tesla (TSLA) are all experiencing declines, highlighting the challenges faced by these tech titans in the current market environment. Tesla and Apple are grappling with slowing demand in the crucial Chinese market, a development that has raised concerns about their growth prospects in one of the world's largest economies.

On the other hand, Alphabet, the parent company of Google, is facing challenges related to the hype surrounding artificial intelligence. While AI has sparked the interest of investors, Yahoo Finance's Madison Mills joins the Live Show to break down why AI alone is not enough to sustain investor engagement.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

JULIE HYMAN: Both Apple and Tesla ending the day lower after several sessions of declines. Yahoo Finance's Madison Mills here with her takeaways for the day. And this kind of speaks to what I was just saying is that we're starting to see some of these divergences.

MADISON MILLS: We're seeing the divergences, and we're getting a lot of fun pithy names from the street. Josh and I were talking about this, the three AI amigos you mentioned.

JOSH LIPTON: That was Gene Munster.

MADISON MILLS: Steve Sosnick today telling me it's the Fantastic Four, which I find interesting. My take, which people would pay millions of dollars for, of course, is that there are three winners, one survivor, and three losers here. So you have Apple, Tesla really struggling year to date.

And I want to talk about their exposure to China, because that's one of the primary drivers to the challenges that they're having. With Tesla, we've got weak deliveries in China. Apple's local iPhone sales are struggling. And then you have Alphabet, which announced an AI-driven image search functionality earlier this year that they had to take off the market in under 24 hours because of challenges with that AI.

That leads me to my second point here, the AI and mentions of AI are not enough. You actually have to be able to use it, imagine that. It has to work in order for the market to be happy about it. And there's really no better case for that than Nvidia, which, by the way, as Jared was mentioning, that sea of green over there, Nvidia has maintained that sea of green this week, even when we've seen some sell-offs. So continuing to see Nvidia lifting up the broader market here.

In terms of what's next, it seems like these AI plays that can win on not only the use case, but also the fundamentals, keeping those sales up in spite of any, you know, decreased sales out of regions like China, that is going to be the key for this rally moving forward.

JOSH LIPTON: It was interesting to talk about that AI thing, we just spoke to Doug Clinton over Deepwater. And his firm's a shareholder, but clearly expressing some real frustration there. Yeah--

JULIE HYMAN: With Alphabet you mean?

JOSH LIPTON: With Alphabet, yeah.

MADISON MILLS: It doesn't work. And so if you introduce something to the market that doesn't work yet, you can't really be surprised when people aren't happy about that, I would imagine. But then I'm also-- I'm interested in Microsoft. Obviously, they're up on the year. So I think we have a chart showing the Magnificent Seven names compared year-to-date.

They were the clear winner of AI because of OpenAI, of course, but really trailing the likes of Nvidia, of course, in the Magnificent Seven trade year-to-date. And I'm curious about whether they're going to be able to have a catalyst for more growth moving forward on AI or if that's just priced into the name at this point.

JULIE HYMAN: Well, it's also interesting as we talk about now that some of them are lagging. And yet up until a couple of days ago, the market was continuing to make new highs, which sort of lends credence to the idea, as some strategists we've been talking have been saying, that there is a broadening that's been happening.

Nancy Tengler, I think, called it a quiet broadening, right?

MADISON MILLS: Stealth broadening, stealth, yes.

JULIE HYMAN: Stealth broadening in the market that's been happening. So the idea for so long that the market could not go up unless all of these guys were going up, that now seems to be going away a little bit.

MADISON MILLS: Yeah. We had this UBS note saying, rain or shine, whether you've got the Fed raising rates higher for longer, cutting rates, or whether you have all of the Magnificent Seven performing well, to your point, Julie, it seems like this market is going to go up regardless. As long as Nvidia is there, we're good.

JULIE HYMAN: Stocks go up.

MADISON MILLS: Stocks go up. Yes, exactly.

JOSH LIPTON: Madison, thank you so much. Appreciate it.

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