The era of the ‘Magnificent Seven’ as a unified market trade is coming to an end.
This is the prediction from Nigel Green, CEO and founder of financial advisory giant deVere Group, who believe that within five years only three of today’s mega-cap tech giants will still command the premium valuations associated with being viewed as the dominant winners of the AI revolution.
“The Magnificent Seven will become the Magnificent Three,” he says.
“My prediction is that within five years, markets will conclude that only three of today’s mega-cap technology companies truly capture the economic upside of the AI revolution.
“The others will remain extraordinary, highly profitable businesses, but investors will increasingly view them as consumers of AI infrastructure rather than the primary beneficiaries of it.”
His comments come as a global sell-off in technology stocks gathered pace following Apple’s decision to raise prices on MacBooks and iPads, citing soaring memory and storage costs driven by explosive demand from AI data centres.
Apple’s shares fell more than 6% after the company acknowledged that it could no longer fully shield consumers from the inflationary effects of the artificial intelligence boom, helping trigger a broader retreat in technology stocks globally.
The “Magnificent Seven” – Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla—have dominated global equity markets in recent years, accounting for a substantial share of gains in major stock indices and becoming synonymous with the tech and AI investment boom.
But Green argues that investors have made a fundamental mistake in treating them as a single trade.
“The market has largely assumed that all seven companies benefit equally from artificial intelligence. I believe that theory will prove to be one of the biggest investment misconceptions of this decade,” he comments.
“This wasn’t a sell-off because consumers suddenly stopped wanting iPhones, MacBooks or AI services.
“It was because one of the world’s most powerful companies effectively admitted that it no longer controls some of the most important economics in the tech sector.
“AI, it would appear, is creating a completely new hierarchy of power in global technology.
“We expect that the winners of the next decade will increasingly be the companies selling the infrastructure, memory, chips, energy and computing capacity that AI requires.”
The recent surge in memory prices illustrates the scale of the shift.
Industry estimates suggest memory and storage costs have quadrupled in the past three quarters as suppliers increasingly prioritise production for high-bandwidth memory used in AI servers.
Meanwhile, memory manufacturers have reported record revenues and margins, highlighting where the economic power of the AI revolution may ultimately reside.
“The premise underpinning markets has been that the AI boom lifts all tech giants equally. I believe the reality will prove to be far more nuanced.”
Instead, he argues, investors will increasingly distinguish between companies that profit directly from the economics of artificial intelligence and companies that incur significant costs to participate in it.
“Owning an AI strategy and capturing the economics of AI are two very different things,” he affirms
“Some of today’s largest technology companies are spending hundreds of billions of dollars building artificial intelligence capabilities. Of course, this doesn’t make them losers.
“What it does mean is that they may not ultimately command the same valuation premiums as the companies controlling the critical infrastructure that powers AI.”
Green believes markets are approaching a major inflection point.
“For years, investors have viewed the Magnificent Seven as a single trade. I believe that trade is beginning to fragment,” he says.
He predicts that over the next five years, markets will increasingly divide mega-cap technology companies into two categories.
“Those that extract economic rents from the AI ecosystem and those that consume those rents.
“The companies controlling chips, memory, computing power and AI infrastructure will ultimately possess the greatest pricing power.
“The companies buying those inputs will continue to thrive, but they may increasingly face margin pressure and lower valuation multiples.”
He is quick to stress that this is not a prediction of decline for the world’s largest technology companies.
“This is not a prediction that four of the Magnificent Seven fail. Far from it,” says Nigel Green.
“Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla are among the greatest businesses ever created. My prediction is simply that markets will stop treating all seven as equal beneficiaries of AI.”
He stops short of identifying which three companies will emerge as the long-term winners.
“But the dividing line will become increasingly obvious.
The implications go far beyond current market volatility.
“We could be witnessing the end of the consumer technology era as the dominant force in markets,” he says.
“For the first time since the personal computer revolution, the most important customers in technology are no longer people, they’re machines.”
Green concludes: “My prediction is that within five years, investors will no longer talk about the Magnificent Seven as a single phenomenon.
“Instead, they’ll be talking about the Magnificent Three, and four other extraordinary companies that successfully adapted to a fundamentally new technological order.”