Article by Avant Group - How is AI impacting the Magnificent 7’s performance?

How is AI impacting the Magnificent 7’s performance?

Posted: 25 July 2025

How have the Magnificent 7 fared in 2025?

The Magnificent 7 tech stocks, Nvidia, Microsoft, Apple, Amazon, Meta, Tesla, and Alphabet, now account for around 35% of the S&P 500 index. Looking under the hood, though, returns across the stocks have varied, with Nvidia, Meta, Amazon, and Microsoft posting gains, while Alphabet, Apple, and Tesla have all fallen YTD1.

Why have Nvidia, Meta, and Microsoft outperformed?

Nvidia, as the core hardware provider of the chips that enable AI training and ongoing inference, has been the clear winner in 2025, with demand from data centres and AI model developers (e.g. OpenAI with ChatGPT) pushing revenues higher. This also saw Nvidia becomes the world’s first $US4 trillion company in July 2025, as the stock price has tripled in 2-years.

Microsoft’s investment in OpenAI and integration of ChatGPT into its Copilot offering and Office 365 products has also seen it directly benefit from consumer demand for the tools. As it uses them to augment its existing product offering to a ready-made user base, particularly in enterprise where businesses are heavily dependent on the Microsoft product suite. Amazon has also benefitted from this AI-upselling method, integrating AI-agents into its Amazon Web Services cloud-product suite, while augmenting consumer products like its Alexa virtual assistant with generative AI.

While Meta has similarly developed direct AI models like Llama targeted at users on its social media apps (Facebook, Messenger, WhatsApp, and Instagram), the key revenue driver has been integrating AI into its ad-targeting algorithms. This has facilitated better content recommendations and more success for advertisers, allowing Meta to charge more for advertising on its platforms.

What about the performance-laggards?

Apple has failed to appeal to investors with its AI pitch, announcing that it would share updates on its AI-powered Siri in the coming year, meaning it might not reach the market until late 20262. This has worried investors, who fear the next crop of iPhones might not feature any material new AI features or provide a revenue bump from AI. Which has created uncertainty about whether Apple can adequately capitalise on what might be the most significant technological development in a generation.

As a predominantly hardware company, receiving around 3-quarters of revenue from selling devices, Apple also has less extensive cloud-based channels to distribute any AI models. Which leaves it at a disadvantage compared to peers like Microsoft and Alphabet with huge dominance in cloud-services and software. To position itself as a dominant AI player, Apple therefore needs to distribute through device upgrade cycles and adequately integrating new AI features, like its Siri upgrade, that prompt consumers to buy a new iPhone or Mac. This has created risk for investors, who don’t currently see a sufficient pipeline of features to justify this upgrade cycle, and fear Apple’s late-2026 target for its Siri upgrade may be too-little too-late, especially if providers like OpenAI begin moving into hardware. Beyond AI, Apple has also been a victim of President Trump’s tariff uncertainty, given they assemble most of their iPhones in China, that has weighed on investor sentiment.

The biggest performance-laggard, though, has been Elon Musk’s Tesla, which has seen new electric-vehicle competitors like BYD, and Musk’s involvement in politics, weigh on revenues3. Musk has long-pushed his vision for Tesla as an AI and robotics company rather than solely an EV maker, with the initial test of 10 autonomous driving ‘robotaxis’ in Texas this year representing the company’s biggest AI-foray to date. The roll-out, though, still lags Google’s Waymo, which has around 1500 autonomous vehicles operating in California, Texas, Arizona, and Georgia.

Musk’s vision is for Tesla’s robotaxi fleet to include hundreds of thousands of vehicles by the end of 2026, through Tesla-owners being able to lease their vehicles into the robotaxi network once they’re augmented with the company’s autonomous driving software. Investors, however, are sceptical, questioning Tesla’s long-term dominance given intense competition, and the fact that new vehicles sales have plummeted. As the carmaker has failed to put out a new vehicle, beyond the poorly received Cybertruck, in over 5-years.

For Google’s parent company, Alphabet, the big concern has been the threat of ChatGPT type generative AI-models on its near 90% internet search market share. As consumers increasingly use these tools to source information rather than traditional Google searches4. The search business accounts for nearly 60% of Alphabet’s revenue, making this a material concern, however some investors also see an opportunity in Google’s own Gemini AI tools. Which includes features like the summaries that now appear above search-results pages, and allows Google to directly compete with OpenAI by augmenting its traditional search capability. The tools have been gaining traction as of March 2025, with around 350 million monthly users, versus an estimated 600 million for ChatGPT. Alphabet has also faced antitrust scrutiny, with the company fighting a $US4.3 billion fine in Europe, and awaiting penalties in the US, where the Justice Department is seeking to force divestment of its Chrome browser business.

What about valuations?

Six of the Magnificent 7 trade on forward P/E ratios about the broader S&P 500. Which suggests that significant earnings growth from AI continues to be priced into these stocks, and meaning performance may continue to vary as earnings under or overshoot expectations.

For now, though, it seems that those experiencing immediate revenue bumps from AI, through their ability to augment and sell tools through existing cloud networks, have been the key market beneficiaries. While those looking to integrate AI into hardware products have lagged.

 

References

  1. The Wall Street Journal, “AI is dividing the fortunes of the Magnificent Seven,” 20 July 2025
  2. The Wall Street Journal, “Apple fails to clear a low bar on AI,” 10 June 2025
  3. Financial Times, “Tesla’s robotaxi ambitions face a reality check after launch,” 20 June 2025
  4. The Wall Street Journal, “Google’s unloved stock makes it a big tech bargain,” 9 July 2025