Tesla’s woes have investors talking about its ‘Magnificent Seven’ successor

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By Johan M. Cherian and Ankika Biswas

(Reuters) – The recent decline in Tesla shares threatens its place in an elite group of companies that have fueled a boom in U.S. markets in recent years, experts said, while sparking talk of an artificial intelligence-related alternative to the electric car maker.

The so-called “Big Seven” companies – Apple, Microsoft, Amazon.com, Alphabet, MetaPlatforms, Nvidia and Tesla – saw a sharp rise last year and pushed Wall Street to record levels.

The group has a collective weight of 28.6% in the S&P 500, up from 27.8% at the end of 2023. That’s near the highest weight ever for this group of stocks, according to LSEG data.

Dozens of institutional investors told Reuters that Tesla’s successor will likely be able to monetize the booming demand for artificial intelligence.

“It’s the Magnificent 6,” said Brandon Michael, chief investment strategist at ABC Funds.

“Tesla is facing a lot of problems with competition from Chinese electric car makers, price cuts, shrinking margins, and even Musk has said himself that the Dojo supercomputer is still a long way off.”

“And if I were to put a seventh device out there, it would be Broadcom, the leader in custom silicon that facilitates the AI ​​revolution.”

Tesla stock, which is down nearly 24% so far this year, formed a “death cross” on Thursday, a sign some traders interpreted as portending more losses. A death cross begins when the 50-day moving average falls below the 200-day moving average.

Falling demand due to higher borrowing costs, lower government support and price cuts across geographies are among the challenges faced by the leading electric vehicle company.

Apple, the other laggard in the group, was down 2.94% as of the last close. Its shares fell 2.2% on Friday after the company forecast a decline in iPhone sales and targeted total revenue of $6 billion below Wall Street expectations.

“What has changed now is that we have flipped the calendar to 2024 and this is a ‘show me’ year where people are looking at the capabilities of companies to not only use AI, but also monetize AI, so some of the shine has taken off.” “Apple,” said Art Hogan, chief market strategist at B Riley Wealth.

Meanwhile, growing optimism around artificial intelligence has lifted NVIDIA shares by 31% this year, Microsoft by about 9% and pushed a popular measure of US chipmakers to an all-time high.

Microsoft dethroned Apple as the world’s most valuable company last January, as investors were disappointed by the lack of AI-related plans in its business model and falling demand in China.

Meta stock rose 21% to a record high on Friday after paying its first dividend, and Amazon.com stock jumped 6.6% as it beat fourth-quarter revenue expectations.

The term “Magnificent Seven” follows previous investor phrases such as the FANG, which was initially Facebook, Amazon, Netflix, and Google, and then became the FAANG to include Apple.

During the technology boom of the late 1990s, investors gathered in the so-called “Four Horsemen”: Cisco Systems, Intel, Dell Computer, and Microsoft.

Who are in the race?

Chipmaker Broadcom, which ABC Funds’ Michael suggested would be a major rival, has more than doubled in value in 2023, as traders bet on a boost from the company’s recent acquisition of VMware.

Another market favorite is Advanced Micro Devices, a close competitor to Nvidia, which produces chips for all the graphics processing units needed for artificial intelligence, more than doubling in 2023.

Although the chipmaker’s market valuation pales in comparison to the electric car giant, it could step up to the plate given that it is another big beneficiary of the AI ​​engine, said Chris Beauchamp, senior market analyst at IG Group.

Most others said the group may shrink to just six members and a new phrase may just emerge, with some already referring to the smaller group as the “Fabulous Six.”

(Reporting by Johan M. Cherian and Ankika Biswas; Additional reporting by Purvi Agarwal in Bengaluru; Editing by Sriraj Kalluvila)

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