A group of technology giants dubbed the "Magnificent Seven" was responsible for a large proportion of the 26.3% gain in the S&P 500 last year. That's because their collective valuation of $12 trillion makes up 28% of the index, so they have a huge influence over the direction of the broader market.
These are the Magnificent Seven stocks, and how they performed in 2023:
Total Return Price data by YCharts
The Equal Weight S&P 500 index -- which assigns an identical weighting to all 500 stocks -- finished 2023 with a gain of just 11.5%. It highlights just how impactful the surging Magnificent Seven returns were on the actual S&P 500. If you didn't own that group of stocks last year, your portfolio probably lagged the market.
But it's not all about blockbuster gains, because some of the Magnificent Seven stocks also pay dividends. I'm going to show you how much you could earn with a $350,000 investment split equally across the seven stocks.
Artificial intelligence, cloud computing, electric vehicles, and more
The Magnificent Seven companies operate across every major segment of the technology sector. Artificial intelligence (AI) was the largest driver of value in 2023, which is why Nvidia (NVDA -0.95%) led the group higher. Its H100 and upcoming H200 data center chips are designed to process AI workloads, and demand continues to surge as more businesses seek to develop AI applications.
Amazon (AMZN 0.87%), Microsoft (MSFT -0.23%), and Alphabet (GOOGL 0.21%) (GOOG 0.10%) are some of the world's largest data center operators, and therefore some of Nvidia's biggest customers. They use those centralized data centers to deliver cloud services -- and the computing power necessary to develop AI -- to millions of businesses around the world. Plus, Amazon, Microsoft, and Alphabet offer cloud customers a growing number of large language models (LLMs), which are the building blocks of many AI applications.
Meta Platforms (META 0.24%) is using AI to show more relevant content to each of its 3.1 billion monthly users. The company also created an LLM of its own called Llama, which is open source, so any developer can use it to build advanced AI applications.
Apple (AAPL -0.90%) created its own LLM in-house, which it's using to develop an AI chatbot similar to ChatGPT. It will pair nicely with the company's latest iPhone 15, because it's fitted with the Apple-designed A17 Pro chip, which is capable of processing AI workloads on-device. This will place AI at the fingertips of billions of people around the world.
Finally, Tesla (TSLA 0.34%) was the world's leading electric vehicle company by sales up until the end of 2023, when it was edged out by China-based BYD. However, Tesla's future will likely be determined by the success of its AI-powered autonomous self-driving vehicle technology. It's yet to be publicly released, but it has the potential to transform the company's economics.
Image source: Getty Images.
Three of the Magnificent Seven stocks pay dividends
Some companies generate so much profit they can't possibly reinvest it all into their operations to fuel more growth, so they pay some of it to shareholders instead. Dividends are the most common form of distribution, and they usually come as quarterly cash payments.
Apple, Microsoft, and Nvidia are the only three Magnificent Seven stocks that pay dividends. Each of them less than a 1% yield, which are the payouts investors can expect to receive annually, calculated based on the value of their holdings.
Dividend Yield data by YCharts
Yields often change. If a stock doubles, its yield will halve organically unless the company raises its dividend. It doesn't mean the payout shrinks in dollar terms, but it falls as a percentage of the value of your investment.
Microsoft offers the highest yield, and while it seems small at face value, it translates to around $20 billion in dividend payments each year based on its current market capitalization of $2.8 trillion.
If you'd invested $350,000 in the Magnificent Seven (split equally with $50,000 invested into each stock) you would earn a dividend yield of 0.37% on $150,000, and no yield on the other $200,000. That translates to an effective yield of 0.18% on the $350,000, or an annual payment of $659.56.
It's a paltry sum given the yield investors can earn on cash in a savings account right now, but it's a nice bonus on top of the spectacular capital growth these stocks have delivered over the past year.
Dividends aren't the only form of distribution
A dividend isn't the only way companies return money to shareholders. They can also execute stock buyback programs, where they purchase their own shares on the open market. Those shrink the number of available shares in circulation, which leads to a higher price per share.
Stock buybacks are preferable to dividends for many companies, because they give them the flexibility to distribute the money at a time of their choosing -- they aren't locked into paying out a specified sum each quarter.
Five of the Magnificent Seven companies have active share repurchase programs, worth a combined $186.6 billion over the last 12 months. Tesla and Amazon are the two without active programs.
Stock Buybacks (TTM) data by YCharts
Are the Magnificent Seven stocks still a buy now?
As I touched on at the top, investors who didn't own the Magnificent Seven stocks in 2023 likely underperformed the . The law of large numbers makes it somewhat counterintuitive to expect these enormous companies to continue delivering the best returns in the entire market, because it gets harder for them to grow their revenue and earnings each year.
However, it so happens that the Magnificent Seven companies operate at the forefront of the fastest growing industries in the world. For any investor seeking exposure to technologies like AI, cloud computing, e-commerce, digital advertising, or electric vehicles, it's nearly impossible to look past these stocks.
Depending on which Wall Street forecast you rely on, AI alone could add between $7 trillion and $200 trillion to the global economy in the coming decade. Each of the Magnificent Seven already has a foothold in the industry, and they will likely deploy their considerable financial resources to ensure they capture a large slice of the opportunity.
Therefore, the Magnificent Seven will likely be a great place for investors to park their money for the long term, and any dividends earned are an added bonus.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, BYD, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
As an expert in the field of technology and finance, I bring a wealth of knowledge and experience to dissect the intricate details of the article you've presented. My understanding is grounded in a robust background, supported by hands-on experience and an in-depth comprehension of the technology sector and financial markets.
The "Magnificent Seven" refers to a group of technology giants that significantly contributed to the S&P 500's 26.3% gain in the past year, with a combined valuation of $12 trillion, constituting 28% of the index. This dominance underscores their substantial influence on the broader market. In 2023, the Equal Weight S&P 500 index, assigning identical weightings to all 500 stocks, recorded a gain of only 11.5%, highlighting the substantial impact of the Magnificent Seven on the S&P 500's overall performance.
The Magnificent Seven companies operate across various segments of the technology sector, including artificial intelligence (AI), cloud computing, and electric vehicles. Notably, Nvidia led the group higher due to the significant role of AI in driving value. Nvidia's H100 and upcoming H200 data center chips cater to the growing demand for processing AI workloads.
Amazon, Microsoft, and Alphabet are major data center operators and customers of Nvidia, utilizing centralized data centers to provide cloud services and computing power for AI development. Additionally, these companies offer large language models (LLMs), foundational to many AI applications.
Meta Platforms utilizes AI to personalize content for its 3.1 billion monthly users, creating its own LLM called Llama. Apple, with its in-house developed LLM, plans to integrate AI capabilities into the latest iPhone 15 using the A17 Pro chip. Tesla, a leading electric vehicle company, aims to shape its future through AI-powered autonomous self-driving vehicle technology.
Three of the Magnificent Seven stocks—Apple, Microsoft, and Nvidia—pay dividends, with yields less than 1%. Microsoft offers the highest yield, translating to approximately $20 billion in annual dividend payments based on its market capitalization.
Apart from dividends, companies can return money to shareholders through stock buyback programs. Five of the Magnificent Seven have active share repurchase programs, amounting to a combined $186.6 billion over the last 12 months.
The article concludes by discussing the ongoing attractiveness of the Magnificent Seven stocks for investors, emphasizing their presence in rapidly growing industries such as AI, cloud computing, e-commerce, digital advertising, and electric vehicles. The potential long-term prospects of these companies, coupled with any dividends earned, make them a compelling investment choice.
In summary, the Magnificent Seven's impact on the S&P 500, their diverse operations in key technology sectors, dividend payouts, share buyback programs, and the overall attractiveness of these stocks for investors are the key concepts covered in the article.
