Texit
The Magnificent Seven carried Wall Street stocks to new record highs. But Tesla’s fall from grace has market participants questioning its place in the exclusive group.
Amazon ($AMZN), Apple ($AAPL), Alphabet ($GOOGL), Meta ($META), Microsoft ($MSFT), Nvidia ($NVDA) and Tesla ($TSLA). The tech stocks dubbed the Magnificent Seven are so popular that their collective market cap makes up a third of the S&P 500.
Five of these companies were top contributors to the S&P 500’s earnings, accounting for 64.3% of YoY earnings growth in Q1. Without them, the index would have declined 6% over the period.
Nvidia and Meta have been front and centre of this story. Nvidia is the undisputed star of the AI story with triple-digit revenue growth YoY. Meta is the comeback king re-entering the trillion-dollar club after a lacklustre 2022.
Amazon, Alphabet and Microsoft also outperformed the wider market. Apple lost ground to competitors in China, but a partnership with ChatGPT sent its stock price right back up to another record high. But it’s a different story for Tesla.
The once-beloved EV manufacturer’s stock price is down 13% YoY, despite a (seemingly unwarranted) recent rally that had bond billionaire Bill Gross comparing it to a meme stock. In fact, if not for that rally, Tesla would have been the S&P’s worst performer year-to-date.
It isn't just Gross with doubts about Tesla – more and more analysts are asking questions about the firm and its place in the Magnificent Seven. Wells Fargo even called Tesla ‘a growth company with no growth’.
In January, it was the most crowded short position among U.S. stocks. Things only got worse when the firm reported lower production and delivery numbers in Q1. Tesla blamed that on external factors, including (but not limited to) an arson attack at its German gigafactory that cost the firm US$1b.
The stock faced another brutal selloff after posting Q2 results, marking a fourth consecutive quarter of negative YoY earnings growth. The firm’s net income fell 41% YoY to US$1.8b, although its profit margins are still higher than EV counterparts.
Things are similarly grim from a valuation standpoint. Tesla is trading on a prospective PE of 58.8 times with earnings per share growth of -4.9%, making it the most expensive member of the Magnificent Seven through that lens.
Whether or not it belongs in the illustrious group, there are many backseat drivers keen to see Elon Musk recharge Tesla's fortunes and get the EV maker back into the fast lane.
