"Magnificent Seven" Makeover: Which Stocks Have Earned a Spot, and Which Haven't?

Globe and Mail

2 days ago

The so-called "Magnificent Seven" stocks -- Alphabet, Apple (NASDAQ: AAPL), Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla (NASDAQ: TSLA) -- provided much of the driving force behind the market's strong growth over the past several years. However, these tech stocks are seeing some uneven performance in 2025, and it may be time for this informal group -- first labeled by a Bank of America analyst in 2023 -- to get a makeover.
I think it's time to give Apple and Tesla the boot and replace them with Palantir Technologies (NASDAQ: PLTR) and Broadcom (NASDAQ: AVGO).
Here's why it should be out with the old and in with the new when it comes to the Magnificent Seven.
Time to toss Apple aside
Both Apple and Tesla stocks have had poor starts to 2025.
The reason for Apple's share price underperformance is that its revenue growth has slowed to a glacial pace, and investors' hopes for a strong smartphone upgrade cycle driven by its artificial intelligence (AI) offerings have faded. In fact, Apple's revenue of $391 billion for its fiscal 2024 (which ended in September) was less than the $394.3 billion it generated in its fiscal 2022. Through the first half of fiscal 2025, its revenue is up 4% year over year, but that is still a slow pace.
A big part of Apple's issues is that it has not innovated. It has had no new breakout products in the last several years, and the company is behind in AI. While Apple dedicated a lot of resources to AI, it has thus far very little to show for it. Apple Intelligence's introduction did little to convince most users to upgrade their iPhones, and it hasn't even launched Apple Intelligence in China yet.
The Chinese market, meanwhile, remains a consistent weak spot for the company. Apple is losing smartphone market share to local rivals, and its revenue in the country has been on the decline. Xiaomi and Huawei have both launched smartphones to compete at the high-end of the market, and Apple has been forced to roll out sales incentives in China to try to spur demand. For a company that built its reputation not just as a technology company but as a luxury brand, that's a difficult path to go down.
Apple has been generating solid growth in its high-margin services business, but it faces a unique risk: It is possible that regulators and the courts may force Alphabet to end the deal that makes Google the default search engine on Apple devices. Alphabet currently pays Apple an estimated $20 billion a year for that privileged positioning, which is pure profit for Apple. Any change to the deal could result in a big hit to its earnings.
Tesla looks to be in trouble
Tesla, meanwhile, has its own problems. Its electronic vehicle (EV) deliveries and revenue fell last year, and it looks like things are getting worse. In the first quarter, its EV deliveries sank by 13% while auto revenue dropped by 20%. In the second quarter, EV deliveries fell an even worse 14%.
Increased competition (especially in China) and the rising popularity of hybrid vehicles have played roles in Tesla's struggles, but some of the blame can also be pinned directly on the actions of CEO Elon Musk. Musk's support and financial backing of President Donald Trump and various Republicans in recent elections, and the subsequent leadership role he took on at Trump's "Department of Government Efficiency" (DOGE) have angered a lot of current and potential vehicle buyers. The constituencies Musk angered have political views that generally make them more likely to buy EVs than the demographic that supports President Trump.
Musk's political actions led to protests and boycotts of Tesla in the U.S. and in several European countries where Tesla operates. More recently, Musk has become an outspoken critic of Trump's legislative efforts, irritating the president and his supporters. Musk even went so far as to threaten to start his own political party, potentially alienating all sides of the political spectrum. Not surprisingly, Tesla sales have been sinking in the U.S., Europe, and China.
Tesla bulls are still betting that its robotaxi business will be a game changer. However, the recent pilot launch of the service in its first city has been met with skepticism and some well-documented potential safety issues. Meanwhile, Alphabet's Waymo has established the early lead in the driverless ride-sharing race.
Time to add Palantir
In my opinion, two of the best stocks to replace Apple and Tesla in the Magnificent Seven would be Palantir and Broadcom, both of which have had strong starts to the year.
Palantir has become a growth machine. In Q1, it recorded its seventh straight quarter of accelerating revenue growth, with its top line climbing by 39% year over year. The greatest contributor to that growth was its largest customer -- the U.S. government. Revenue from federal government sources grew by 45% year over year (or about $116 million) to $373 million. Its sales to U.S. commercial customers grew at an even faster rate, but from a smaller base. They climbed by 71% (or about $106 million) to $255 million. Meanwhile, it recently landed a significant contract with NATO, showing that international defense has the potential to become a third meaningful growth pillar for the company.
Much of Palantir's success stems from its Artificial Intelligence Platform (AIP), which it is positioning to be an AI operating system for its clients. AIP gathers data from various sources and puts it into an "ontology" that connects digital assets with their real-world counterparts, allowing organizations to use AI to help solve their real-world problems.
The platform is already being used by clients across a wide swath of industries to manage an array of different issues, and the opportunities for it appear to be huge. Meanwhile, Palantir recently introduced new agentic AI tools that not only suggest actions but can also carry them out.
Why Broadcom belongs
Broadcom has also been seeing solid growth. Last quarter, its revenue climbed 20% year over year while adjusted earnings per share (EPS) soared 44%.
The growth is being led by its AI networking portfolio, where it provides networking components such as Ethernet switches, optical receivers, DSPs, and NICs -- critical hardware for moving huge amounts of data across AI clusters. Last quarter, its AI networking revenue surged 70%.
However, Broadcom's biggest opportunity lies in custom AI chips. The company helps customers design application-specific integrated circuits (ASICs) that can be used to power AI workloads. After its success in helping Alphabet design its tensor processing units (TPUs), Broadcom has been gaining more and more new custom AI chip customers.
Three of its hyperscaler customers are well advanced in the ASIC design process, and Broadcom has stated that each one of them intends to deploy fabrics of 1 million AI chip clusters in 2027, representing a total serviceable opportunity for the company of $60 billion to $90 billion in that year alone. That's a huge opportunity, and it doesn't even include Broadcom's newer customers, such as Apple.
Given the growth opportunities ahead for both Broadcom and Palantir, they look today like better candidates than Apple or Tesla to form a new and improved Magnificent Seven.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.