The Tech Giants Leading the Charge
The “Magnificent Seven” technology companies have a staggering combined value of $17.2 trillion, accounting for one-third of the entire S&P 500. These powerhouses delivered an impressive average return of 60% in 2024, contributing significantly to the S&P’s 25% gain. Investors who didn’t have these stocks in their portfolios likely underperformed the broader market.
Driving Growth with Artificial Intelligence
Artificial intelligence (AI) is the primary growth driver across the tech sector, and Nvidia is at the forefront. Its graphics processing units (GPUs) are the top choice for AI model development, with demand outstripping supply. Microsoft, Alphabet, and other tech giants are filling their data centers with Nvidia’s chips to develop their own AI software and rent computing capacity to businesses and AI developers.
AI Adoption Across Industries
Meta Platforms has embedded AI into its recommendation engines on Facebook and Instagram to curate content more accurately, increasing user engagement and revenue. Apple is set to become the largest distributor of AI to consumers through its 2.2 billion active devices worldwide, with its Apple Intelligence software offering new features and revenue opportunities. Tesla’s full self-driving software (FSD) has the potential to transform the company’s economics, powering its new Cybercab robotaxi service.
Cash-Generating Machines
The Magnificent Seven companies generate substantial cash flows, with some returning it to shareholders through dividends. Apple, Microsoft, Nvidia, Meta Platforms, and Alphabet pay dividends quarterly, although yields are relatively low, ranging from 0.37% to 0.75%. Microsoft offers the highest yield, having paid out $21.7 billion in dividends during its last fiscal year.
Dividend Yields and Stock Buybacks
While dividend yields may seem paltry, they’re a nice bonus on top of the incredible capital growth. Stock buybacks are another way companies reward shareholders, shrinking the number of shares in circulation and increasing the price per share. Five of the Magnificent Seven companies have repurchased stock over the last four quarters, spending a combined $236.9 billion.
The Future of AI and Capital Growth
The AI revolution is still in its early stages, with forecasts suggesting it could add between $15.7 trillion and $200 trillion to the global economy by 2030. The Magnificent Seven will play a crucial role in creating this value, making them attractive long-term investments. Any dividend payments received along the way will be a welcome bonus.
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