Is the Magnificent Seven’s Earnings Edge Fading?
Key Takeaways
- Nvidia is the only Magnificent Seven company that is expected to be a top 5 contributor to S&P 500 earnings growth this earnings season, according to a recent FactSet analysis.
- This time last year, four companies in the Mag 7 were in the top ten contributors to the S&P 500’s aggregate profit growth.
- The gap between growth at the Mag 7 and the rest of the S&P 500 index has already shrunk, and is expected to narrow further over the next year.
The Magnificent Seven have been the stars of the S&P 500 for the past several years, but the group’s period of exceptional earnings growth may be nearing an end.
Only one of the Magnificent Seven—AI chip giant Nvidia (NVDA)—is expected to be among the top five contributors to S&P 500 earnings growth in the third quarter, according to John Butters, Vice President and Senior Earnings Analyst at FactSet Research. This time last year, two of the Mag 7—Nvidia and Alphabet (GOOG)—were expected to be in the top five, and two more—Amazon (AMZN) and Meta Platforms (META)—were expected to make the top 10.
This year, the four other companies expected to contribute the most to index-level profit growth are Eli Lilly (LLY), Intel (INTC), Boeing (BA), and Micron (MU). Eli Lilly, Intel, and Boeing are all benefiting from easy comparisons against last year. Nvidia and Micron, on the other hand, were top contributors to growth last year and are expected to report earnings growth of 53% and 157%, respectively, underscoring how significant artificial intelligence demand has become to S&P 500 companies.
Why This Is Important
Their exceptionally strong earnings growth was one of the main reasons that Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta and Tesla were dubbed the “Magnificent Seven” in 2023. Their growth fueled much of the stock market’s gains over the past few years. As their growth slows, the profitability of other S&P 500 companies counts for more when investors forecast the index’s future value.
Mag 7 Growth Has Moderated, But Remains Better than Most
Artificial intelligence will also be the focus when the Magnificent Seven report earnings, starting with Tesla (TSLA) after markets close on Wednesday. Microsoft (MSFT), Alphabet and Meta Platforms will report exactly a week later, followed by Apple (AAPL) and Amazon next Thursday.
According to analysts surveyed by FactSet, the Mag 7’s earnings grew an estimated 14.9% last quarter, more than twice as fast as the so-called “Other 493” (6.7%). That gap would be larger without Tesla, which is expected to report its fourth straight quarter of contraction as it contends with inflation and high borrowing costs that have put a new car out of reach for many consumers.
The only other company that is expected to report earnings declined since last year is Amazon, where profit likely fell by less than 1%, according to analyst estimates compiled by Visible Alpha. The rest of the Mag 7 companies with earnings in the next two weeks are expected to say their profits grew between 1% (Alphabet) and 10% (Microsoft) last quarter.
The “Other 493” are expected to continue to close the earnings gap over the next year. The Mag 7’s earnings growth is expected to hold steady around 15% through the first quarter of 2026, while the rest of the index’s growth rate is forecast to accelerate to 11% in the first quarter of 2026 and eventually reach 14.6% in the third quarter of next year, according to FactSet Research.
That said, the Mag 7 could outperform expectations as they did in the second quarter when earnings grew nearly 27%, easily outpacing Wall Street’s forecast for 14%.
