Google, Tesla, And Mag 7 Fortunes Diverge Despite AI Boom

Any dream of a Beatles reunion ended years ago. Like the Fab Four, the Magnificent Seven group of big technology stocks are now going their separate ways.

Google and Amazon are major players in cloud services, but both also operate large legacy businesses that mask the impact of their hyperscaler investments. I Photo: Google Quantum AI

The group moved in sync for years amid the artificial intelligence (AI) boom, but the fortunes of its members have diverged recently as the hype has faded and reality has taken hold, Brian Swint reported for Barron’s Daily.

Taken together, the Mag 7 still account for about half the weighting of the Nasdaq Composite.

Two of them—electric-vehicle maker Tesla and Google-parent Alphabet—are scheduled to report earnings Wednesday.

The MAGS exchange-traded fund is within a whisker of its record high from December, and the stock market’s overall gains are once again being driven by Big Tech.

But this papers over a mixed performance within the group this year: Tesla and Apple have dropped at least 15%, Amazon and Alphabet are modestly up, while the remaining three—Nvidia, Meta Platforms, and Microsoft—have each gained more than 20%.

This trend largely reflects the order in which companies are positioned to profit from AI. First come the hardware makers.

Then, the hyperscalers building massive data centers, followed eventually by software developers.

Google and Amazon are major players in cloud services, but both also operate large legacy businesses that mask the impact of their hyperscaler investments. Even though OpenAI just delayed its next ChatGPT release, AI usage is still growing rapidly. Oracle and China’s Alibaba are other hyperscalers that stand to benefit.

The winners in AI software may be harder to predict. Unlike chip manufacturing and data center construction, software development requires relatively little capital to scale.

The ultimate software winners could include companies we haven’t heard of yet—while some of today’s household names could turn out to be losers.