The “Magnificent 7” refers to a group of leading tech companies — including Apple, Microsoft, Amazon, Alphabet (Google), Meta (Facebook), Tesla, and Nvidia — that have shown exceptional growth and market performance. While there may have been doubts that the run would continue after the massive returns over the last decade, here are several reasons why we believe these companies will continue to perform strongly into the next decade.
Technological Innovation
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- Artificial Intelligence (AI) and Machine Learning: Companies like Google, Amazon, and Microsoft are at the forefront of AI and machine learning advancements, which can drive new products and services, enhance efficiency, and create new revenue streams. For example, you may wish to purchase a new Apple iPhone yourself when you get FOMO (fear of missing out) as your friends show off their ‘Apple Intelligence’ this Fall.
- Cloud Computing: Amazon (AWS), Microsoft (Azure), and Google (Google Cloud) are dominant players in cloud services, a sector expected to continue growing as businesses increasingly shift to cloud-based solutions.
- Consumer Technology: Apple continues to innovate in consumer tech, with products like the iPhone and Apple Watch and potential new ventures in augmented reality (AR) and virtual reality (VR).
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_Market Leadership
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- Network Effects: Companies like Facebook (Meta) and Google benefit from network effects where their platforms become more valuable as more users join, creating high barriers to entry for competitors.
- Brand Loyalty: Strong brand loyalt Ly and ecosystem lock-in (e.g., Apple’s ecosystem of devices and services) can help create a steady customer base and recurring revenue.
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Financial Strength
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- Strong Balance Sheets: These companies have significant cash reserves, which allow them to invest in research and development, acquisitions, and new ventures without taking on excessive debt.
- Profitability and Cash Flow: Consistent profitability and robust cash flow enable ongoing investment in growth opportunities and shareholder returns through buybacks and dividends.
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_Global Reach
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- Expanding Markets: These companies have a significant presence in international markets, and continued expansion into emerging markets presents additional growth opportunities.
- Diversified Revenue Streams: Diversification across various sectors (e.g., Amazon in e-commerce and cloud computing, Google in search and advertising, and Alphabet in various moonshot* projects) reduces dependency on any single revenue stream.
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*Moonshot project refers to any new project that could have outstanding results after one intense, consistent effort.
The returns of these companies’ share prices, as represented by the Bloomberg Magnificent 7 TR Index (USD), have had a similar exponential pattern as that of “Moore’s Law”, which is calculated by doubling in value every two years.
Source: Bloomberg as of July 22, 2024 in CAD. Moore’s Law data is used to illustrate a trend of exponential growth, which is calculated by doubling a value every two years. The Bloomberg Magnificent 7 TR CAD Index is an equal-dollarweighted index. Past performance is no guarantee of future performance.
In conclusion, we believe the "Magnificent 7" — Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia — are well-positioned for continued growth due to their innovation, market leadership, and financial strength. To ensure your investments capitalize on these opportunities and align with your financial goals, contact your advisor for tailored strategies and insights.
Download the full Magnificent 7 commentary (PDF).
This document reflects the views of Empire Life as of the date published. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance on or misuse or omissions of the information contained in this document. Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Please seek professional advice before making any decisions.
Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed.
Empire Life Investments Inc. is the Portfolio Manager of certain Empire Life segregated funds. Empire Life Investments Inc. is a wholly-owned subsidiary of The Empire Life Insurance Company.
Segregated fund contracts are issued by The Empire Life Insurance Company (“Empire Life”). A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Past performance is no guarantee of future performance.
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September 2024
