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Valuations are still so rich on the “Magnificent Seven” companies that future returns may not be as hearty as in the past — offering a great reminder to investors to stay diversified.
“Is the return on investment with some of them really going to play out?” Russell Investments chief investment officer Kate El-Hillow told me on Yahoo Finance’s Opening Bid podcast (video above; listen in below).
“That’s why we really focus on making sure we’re running diversified portfolios. It’s hard to get out of kind of the way of the Mag 7, and being underweight them can still be a challenge, but really diversifying the portfolio is so important because it is getting overvalued in particular pockets.”
The Magnificent Seven trade of Meta (META), Amazon (AMZN), Google (GOOG), Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA) has been a mixed bag in 2025.
Only one of the big-cap tech components — Meta — has meaningfully outperformed the S&P 500 (^GSPC) this year. The stock has strung together an impressive stretch of gains, bringing its year-to-date advance to 18%.
As for the others, they have generally hovered around the S&P 500’s year-to-date performance of a 4% gain — except for Tesla, which has shed 7%.
Despite the middling performance, the Magnificent Seven continues to retain its popularity.
“Long Mag 7” remained the most crowded trade, BofA said in its latest fund manager survey this week.
The valuations on each Magnificent Seven stock are at noticeable premiums to the S&P 500.
Tesla alone is valued at 121 times estimated forward earnings, for example. The S&P 500 trades on a forward price-to-earnings multiple of about 22 times.
Amazon has 84 sell-side analysts covering the company, and 79 of them rate the stock a Buy, per new data from Trivariate Research.
In fact, only 4.8% of the 504 total sell-side analyst recommendations on the Magnificent Seven stocks are a Sell, the research outfit said.
El-Hillow said her clients aren’t excited to own the Magnificent Seven, but they do it in targeted ways so as not to underperform. Industrial and financial stocks continue to look compelling, El-Hillow added.
“Normally, this kind of valuation, beta, and capital spending would be accompanied by a highly certain future revenue growth and the expectation of sustained stability of that growth,” Trivariate Research founder Adam Parker said. “However, today’s outlook seems increasingly tenuous given the disruptive nature of AI and the rapidly changing landscape of software development. Investors should be lowering their exposure to the basket of AI stocks.”
