The Mag 7 stocks had a rough first quarter, perhaps overdue given their exceptional performance over the last few years. As I am writing this now, global equities – including the Mag 7 stocks – are taking another leg down in the after-market following President Trump’s announcement on Wednesday afternoon of widespread tariffs on a long list of trading partners.
The S&P 500 was down 4.6% in the 1Q25, but the Mag 7 stocks collectively were down more than this. Losing $2.2 trillion in market cap in 1Q25, the infamous group of tech giants collectively decreased from 33.1% of the S&P 500 index at the end of 2024 to 31.9% at the end of the first quarter 2025. The Mag 7 stocks still remain a very significant portion of the S&P 500 index, undoubtedly overly concentrated and hence very influential in determining the direction of travel of the broader market.
All seven of the famous tech giants – AAPL, AMZN, GOOG, META, MSFT, NVDA and TSLA – suffered declines in their stock prices in 1Q25, ranging from -1.5% for META to -35.8% for TSLA. The companies generally had good revenue and earnings growth in their most recent quarter with the exception of TSLA, so the price action has largely been attributable to compression in valuation multiples, meaning lower P/E ratios and lower price-to-sales ratios. As you are looking at the table below, keep in mind that the P/E ratio of the S&P 500 at the end of the first quarter was 26.6x.
Investors and pundits seem mixed as to whether or not these new more attractive pricing levels represent fair value for the Mag 7 stocks, although market jitters over tariffs are providing a powerful, negative overlay to risk markets at large. The bias at the moment seems against “buying-the-dip”, a mentality that has largely supported these and many other stocks each time they fall in price since the pandemic. I suspect investor skittishness is related to the tremendous uncertainty attributable to the policies of the Trump administration, especially with respect to the direct and indirect effects of tariffs In addition, the direction of interest rates is difficult to determine, with inflation looking to be stuck at around 3% even though economic metrics suggest a weakening US economy. Declining consumer confidence and deferred business investment are currently proving problematic, and investors naturally fear that this could portend a decline in future earnings of companies, including the seemingly invincible Mag 7 giants, putting further downward pressure on their share prices.
As those of you know that follow me, I own five of the seven Mag 7 stocks. Although I have owned META in the past, I am disappointed I have missed the run over the last two years in the stock of this social media giant. Equally however, I am thrilled that I have avoided the most over-valued by far of the Mag 7 stocks, TSLA, which has been highly volatile and behaves as much as a meme stock as it does a stock that reflects the company’s fundamentals. I will continue to avoid this name unless the valuation at some point moves in the realm of believable, and the company sorts its operational difficulties.
Overall, I still like the Mag 7 stocks I hold, many of which I have held for decades (ex-NVDA). In fact, I have selectively added scraps to MSFT, NVDA and GOOG over the last two weeks, which at the moment, is looking premature given the performance of the stocks post-tariff announcement. I consider these companies to be defensive to various degrees, but this does not protect the valuations from digressing towards market means as it becomes increasingly obvious that the stocks have been over-bought. Moreover, in a broad market turndown, there will simply be no place to hide. None of this changes my mind as a long-term buy-and-hold investor, because I think the future for these stocks is generally bright in the coming years and decades.
You can find comprehensive information from Street analysts on each of these tech giants, certainly much better than you will get from me. Nonetheless, I am providing my two cents below on each name in a very “short & sweet”, and high level, analysis. As you are reading the short diatribe on each company, refer to the table below which shows the revenue (YoY), net income (YoY) and operating margin trends over the last two years.
Apple (AAPL): AAPL remains the largest market-cap company in the world, an accolade it has arguably earned over decades of innovation in consumer products that are essential now to much of the world. It has been a core holding of mine for decades, although I have been reducing my position now for around two years. The company’s dominance of the smart phone market is well-recognised, but it is the slower growth of ever-less innovative models of the iPhone that has proven to be a challenge for Apple. Of course, there is much more to Apple than just the iPhone, but the iPhone is a very material part of the company’s revenues (51% of revenues in 2024) and earnings. Apple has had the slowest growth in earnings and revenues than any Mag 7 company except TSLA, which makes the fact that the shares have not suffered more valuation compression in the last few quarters rather shocking. Given its dependency on consumer spending, there could be adverse effects of slower global economic growth. The company does pay a dividend (0.44% yield), and also is an active buyer of its own stock, having put in place a $110 billion repurchase programme in May 2024. I think the stock is still too expensive at this level, but it is a “must have” for long-term investors.
Microsoft (MSFT): MSFT is the second largest market-cap company in the world, and one of my top two picks (along with Berkshire Hathaway). The company has a load of products, many of which are dominant in their segment, including the likes of Microsoft Office, Azure cloud services, Windows, and Xbox/gaming. MSFT was also an early investor in OpenAI, which is the maker of ChatGBT. Aside from NVDA, the company has the second best EBITDA margin of any of the Mag 7 companies. MSFT has been able to maintain double-digit top- and bottom-line growth quarter after quarter, amazing when you consider the size of the revenue base of the company. I consider MSFT’s business less cyclical than AAPL, but it is more tethered to the fate of AI which in turn is dependent on a significant amount of investment going forward. AI has undoubtedly introduced volatility into the shares, and sentiment around AI can cause the shares to swing intraday. Unlike AAPL though, MSFT suffered a rather sharp compression in its valuation multiples in the first quarter, arguably warranted given that the stock had gotten expensive. The company pays a dividend (current yield of 0.83%), which is the highest of the Mag 7 companies. It approved a $60 billion stock buyback plan in September 2024. For what it is worth, MSFT is one of only two US companies that is rated AAA/Aaa (the other being JNJ).,
Nvidia (NVDA): The story of NVDA is well known, with the shares having experienced an amazing ascendancy as the world’s most successful and innovative designer of leading-edge semi-conductor chips. NVDA has arguably been the biggest beneficiary of the evolution and future aspirations for AI. The company has the highest margins of the Mag 7 companies, and has so far been able to maintain them with no other chip designer able to crack the dominance of NVDA chips in many markets, or at least not yet. Aside from TSLA, NVDA shares were the second worst performing Mag 7 stock in 1Q2025, although it was by far the best performing in 2024. The valuation is now reasonable looking back, but is even more reasonable when looking forward (24.6x forward P/E ratio and 1.06 PEG, the best of the Mag 7). The company has the third lowest forward P/E ratio of any of the Mag 7 companies. Even more than MSFT, NVDA’s fortunes will be linked to the speed and adaptation of AI. I have been in and out of NVDA over the last few years, and in retrospect, should have just held my position, always the best advice when you have conviction. I started to rebuild my position around 15 months ago, and although still a relatively modest position, I add periodically when the shares are under pressure. NVDA pays a very small dividend, with a yield that hardly matters at 0.03%.
Amazon (AMZN): AMZN has developed from an on-line book store 30+ years ago to the world’s largest consumer retail company, now used by people in all corners of the world. Of course, AMZN is more than just a retail company, as it is one of the three dominant global cloud computing companies (Amazon Web Services, AWS), and has several other business lines. AMZN’s reliance on retail sales means it has the lowest operating margins of the Mag 7 companies, and it is inherently cyclical although it arguably does have a non-cyclical element in the form of a food / grocery business (Whole Foods and Amazon Fresh). AMZN does not pay a dividend, and is one of only two Mag 7 companies not to do so. The company went through a tough patch a couple of years ago, but seems to have regained its operating momentum the last few quarters.
Alphabet (GOOG): GOOG is best known for its dominant search engine, which is facing two distinct threats at the moment. Firstly, there is government pressure from the US and Europe to break the company up because the search engine is deemed overly dominant. Google’s search engine currently has around 90% market share, and not surprisingly, this has been viewed as monopolistic by many governments. The second threat comes from AI, which some believe will steal the thunder of Google’s traditional search engine and eventually destine it for the bin. ChatGBT is often mentioned as the potential fly-in-the-ointment for Google search, but GOOG has responded by developing it owns AI feature (Gemeni) embedded in its search engine. GOOG also owns YouTube, which has represented a growing percentage of total revenues related to advertising sales. Of course as with META, advertising revenues are cyclical and will be vulnerable to economic headwinds. The company started paying a dividend in the second quarter of 2024, and has a 0.50% yield, the second highest of the Mag 7 companies. By traditional valuation metrics, GOOG is the cheapest of the Mag 7 companies because investors have been rattled by both the threat of a breakup and AI threats. I consider the company decent value at the moment, and will probably continue to add shares (scraps) on sharp dips.
META Platforms (META): META is known for its social media presence via Facebook, Instagram and WhatsApp, all leading global platforms. The company reported that it had 3.35 billion daily active users across its platforms in the fourth quarter, meaning that it touches around 40% of the world’s population. The company is dependent on advertising, so is considered cyclical. Pressure on social media platforms has also served to keep the valuation constrained, with multiples well below its Mag 7 peers. This all began to change at the beginning of 2023. Since then, the stock has increased nearly sixfold as investors have acknowledged the incredible presence and strength of the company. Like GOOG, META started paying a dividend in the second quarter of 2024, and now offers a 0.34% yield. In spite of the run, the stock has the second lowest forward P/E ratio among its Mag 7 peers. I have been in and out of META for 12+ years, and am not currently invested. My concerns have incorrectly been around blowback of social media generally, and fear that the regulatory arms of governments might reach in and either force the company to break up or severely curtail the breadth of its marketing presence. This is a risk globally, but I would say the combination of the regulatory-lite approach of the Trump administration and the fact that Mr Zuckerberg has curried favour with President Trump probably removes this threat – at least from a US perspective – for the time being.
Tesla (TSLA): This is a company that was a trendsetter, but I would never get involved in its stock because of its meme-like characteristics. Clearly, the core EV business of Tesla is facing all sorts of headwinds that are visible in the operating results for the last few quarters, including an overall de-emphasis on EVs (meaning slower evolution / rollouts) and ever-growing competition. TSLA bulls will say the issue is that Mr Musk has taken his eye off the ball by heading DOGE under President Trump, but I think the problems are much more severe than that. In addition, TSLA bulls are betting on future revenue streams that are at best aspirational. This is of course an investor’s choice, but I do not think this upside should be so aggressively reflected in the valuation of the company’s stock. The company has a trailing P/E ratio of 118x, a forward P/E ratio of 96x, and trades at 8.6x sales. The company has the lowest operating margins by far of the Mag 7 cohort, and it’s stock has been absolutely hammered this year. Having said this, the stock clearly has a life of its own. If you get involved (or are involved), don’t expect the stock to reflect fundamental value anytime soon. Instead, be prepared for it to be highly volatile based on a combination of news flow and the tendency of diehard TSLA investors on platforms like X and Reddit to step in on dips to support the shares, even as professional investors are running for cover.