Is the Magnificent Seven's Reign Over? Meet the New Contenders for the AI Crown

For the past few years, the stock market's story has been written by seven dominant characters: Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla. This group, dubbed the "Magnificent Seven," has driven unprecedented gains and seemed to be the only ticket required to participate in the artificial intelligence revolution.

But that familiar narrative is beginning to change. As the AI trade expands in unexpected ways, it's becoming clear that not all of the old guard are keeping pace. A fracture is appearing within the market's most powerful club, and a new class of contenders is emerging from the shadows. Here are the most surprising takeaways about the future of AI investing.

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The Magnificent Seven Is Starting to Fracture

While the Magnificent Seven has been responsible for more than half of the S&P 500 Index's 70%-plus rise since the start of 2023, a significant performance gap is widening within its ranks. The assumption that all seven members are equally poised to benefit from AI is proving to be a mistake.

The Magnificent 7’s dominance is diverging - while Nvidia continues to soar, others like Apple, Amazon, and Tesla lag behind."

On one side, you have the clear AI leaders. Nvidia, Alphabet, and Meta are considered well-positioned for an AI-centric world, with their shares rising between 21% and 33% this year. On the other side, the outlook is far less certain. The prospects for Apple, Amazon, and Tesla are less clear, and their shares are "lagging badly" in comparison. This divergence has led some to question whether winning past tech cycles like mobile and e-commerce guarantees victory in the AI era. This skepticism prompted Chris Smith of Artisan Partners' Antero Peak Group to question the group's relevance: "It is hard to see the current Mag Seven as the best representation of AI."

The Real AI Winners Might Not Be Who You Think

Investment strategies focused exclusively on the Magnificent Seven risk missing out on a growing list of other firms that are not just participating in the AI future, but actively thriving in it. As the AI ecosystem matures, the beneficiaries extend far beyond the most obvious names.

A new class of AI leaders? Stocks like Palantir, Oracle, and Broadcom are surging ahead, outpacing the Mag 7 in AI momentum.

Key examples of these new contenders include semiconductor powerhouse Broadcom Inc., cloud-computing giant Oracle Corp., and data-analytics firm Palantir Technologies Inc. Their recent performance tells a compelling story.

• Oracle's shares are up more than 75% this year as its AI-related cloud-computing business takes off.
  

• Palantir is the top performer in the tech-heavy Nasdaq 100 index, soaring an incredible 135% this year on strong demand for its AI software.
  

This trend underscores a critical shift for investors. Portfolio manager Nick Schommer echoes the need to broaden the search: "We do need to expand the conversation beyond just the Mag Seven."

We've Seen This Story Before

The concept of packaging a handful of dominant companies into an easily digestible theme is a long-standing Wall Street tradition. The creation of "buzzy stocks to simplify the market" is a recurring cycle, and history provides a clear lesson: market leadership is never permanent.

Before the Magnificent Seven, there were other legendary groupings that defined their eras. The "Nifty Fifty" of the 1960s, the "Four Horsemen" of the dot-com boom, and the "FAANGs" of the smartphone age were all dominant in their time. However, just as those groups eventually "ceded leadership to new names," we should expect the current leaders to face a similar evolution. This doesn't necessarily mean a crash for the old guard, but rather a natural progression as the market adapts to new technology. As Jurrien Timmer of Fidelity Investments explains, this is a natural market evolution: "It could be that as the AI story evolves new winners take the place of the old winners, even if the previous ones continue to do fine."

What Comes After Magnificent?

The era of the Magnificent Seven's singular market dominance is evolving. The list of true AI beneficiaries is expanding, forcing investors and analysts to look beyond the familiar headline stocks. The market is already adapting to this new reality, with Wall Street proposing new groupings like the "Fab Four," "Big Six," "Elite 8," and even launching products like the "Cboe Magnificent 10 Index" to capture this important shift.

Proving just how subjective the definition of leadership can be, that new index notably excludes a surging AI giant like Oracle, even as the company enjoys one of its best years ever.

The core story of AI remains one of immense opportunity, but the cast of characters is clearly changing. As AI continues to reshape every industry, the most important question for investors is no longer about the seven companies we know, but about the next ones. Who will be the unexpected winners we're all talking about three years from now?

Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any securities. Past performance is not indicative of future results. Investors should conduct their own research or consult with a licensed financial advisor before making investment decisions. Alpesh Patel OBE www.campaignforamillion.com