The Magnificent 7 group of stocks has seen a poor start to 2025. The group entered 2025 with premium valuations, and expectations for premium growth to continue. But earnings growth has only fallen in line with the broader market, and that represents a sharp slowdown compared to the group’s recent performance. Investors may be well served to ask whether new products coming to market may send the group’s growth rate higher for the remainder of the year.
The Magnificent 7 group of stocks has so far underperformed the broader S&P 500 in 2025. An equal weight portfolio of these stocks has returned -15% year to date, representing a large underperformance against the -5.9% return for the S&P 500 (FactSet data, as of 3/13/2025 closing prices). This result marks a sharp turnaround from the previous two years of stellar returns and notable outperformance for the group of technology-related stocks, as shown below. In fact, the tech sector is off to its second worst start to a year in the past decade, faring better than only 2022. You can see that displayed below by ranking % returns on a yearly basis.
A combination of high beginning valuations and cooling earnings growth for these companies may be to blame for their lackluster return. My colleague Grant Engelbart, VP, Investment Strategist recently charted technology’s premium valuation, both relative to its own history and against other market sectors. Premium valuations often demand premium fundamentals if investors expect to outperform the market while owning the stocks. But the Magnificent 7’s fundamentals have slowed down on a relative basis. Earnings revisions so far this year for the group have nearly mirrored the S&P 500 through the first 10 weeks. Analysts polled by FactSet expect the Magnificent 7 stocks to earn only 2.1% more over the next twelve months than they did at the beginning of the year, nearly the same as the 1.9% revision to the broader S&P 500, as shown below. With expected fundamental performance only on par with the broader market, investors have not been willing to pay a higher valuation.
The Magnificent 7’s current expected earnings growth is much slower than what powered the group to outperform in 2023 and 2024. With all companies in the group having reported their latest quarterly results, sell-side analysts polled by FactSet have only revised higher the group’s next twelve months’ (“NTM”) expected earnings per share (“EPS”) by 2.1% since the start of 2025. At this time in 2024, analysts had revised the Mag 7’s NTM EPS higher by 9.1%, and ultimately to 40% by the end of the year, which drastically outpaced the broader market. If the group’s positive 2024 EPS revisions represented ‘premium fundamentals’ and justified their higher valuations, 2025 fundamental performance has so far been less than premium.
Investors may be well suited to ask themselves whether this fundamental performance represents a maturation of the group’s growth drivers, or rather a temporary business performance slowdown before a resumption of earnings growth. I’m reminded of the growth transition that Nvidia is currently experiencing. After bringing new products to market that have powered the AI boom – and the earnings growth of some of its largest customers – the company’s latest earnings only met expectations. This has been driven by some delays and interruptions in the launch of its newest products but may prove transitory. It’s largest customers – such as Microsoft, Google and Tesla, to name a few – have also noted that they remain ‘supply constrained’ amidst the delay of Nvidia’s rollout and are eager to take delivery of more chips. If investors believe that, and that the delivery of these newer, higher powered products, may unlock future earnings growth, the less than magnificent year may be due for a turnaround.
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2025 has been a ‘Less than Magnificent Year’ so far, with the group of Magnificent 7 stocks lagging the broader the S&P 500. Valuations for the group were high to start the year, and while valuation is a poor short-term timing tool, the elevated valuation suggested that investors expected their premium fundamental performance to continue outpacing the market. That hasn’t happened, as the group’s earnings revisions have only fallen roughly in line with the broader market. And that’s a sharp slowdown compared to 2024’s outperformance. Investors may be well served to ask if this is a temporary or sustained slowdown. New products coming to market may be able to rejuvenate the group for the remainder of 2025.
For more content by Blake Anderson, CFA®, Associate Portfolio Manager click here.
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