If I’d invested £1k in the stock market’s ‘Magnificent 7’ a year ago, here’s what I’d have now

Over the past year, a group of US shares have been driving stock market sentiment. The collection has been referred to as the ‘Magnificent 7’, given the extent of the share price returns and the number of stocks included. If I’d invested £1k equally between the different companies a year back, here’s what I’d currently have.

Outperformance as a group

For reference, the basket is made up of Nvidia, Tesla, Apple, Amazon, Alphabet, Meta, and Microsoft. The returns of the firms individually over the past year ranges from -17% from Tesla, up to 179% for Nvidia. That’s a huge range to deal with!

An equal split between all of the stocks means that my percentage return would be 48.5%. That means my £1,000 would currently be worth £1,485. That’s quite the unrealised gain considering that the FTSE 100 is only up 10% over the same time frame. Even the tech heavy Nasdaq index is only up 24%.

A key takeaway

One immediate gleaning I have is that diversification is key to success. Even though seven stocks isn’t enough to get 100% diversification, it certainly spreads my risk around. For example, let’s say I had just chosen to buy one stock and settled on Tesla (NASDAQ:TSLA). I’d had a loss right now if that was the case.

Even though the electric vehicle (EV) manufacturer’s share price has fluctuated massively over the past year, the trend has been lower. The business has posted some disappointing investor updates, both on delivery numbers and financials.

For example, the total number of deliveries in Q2 fell by 4.8% versus the same quarter last year. This might not seem a lot, but throughout 2023 it was growing at an incredible rate. This makes it much more poignant to consider.

With the much hyped robotaxi release being pushed back, along with weak EV sector demand from China, the share price has struggled to gain traction. However, the impact of the charismatic Elon Musk shouldn’t be underestimated. His ability to impress shareholders and grow a company is a real asset for Tesla to keep.

The year ahead

Of course, the risk in spreading my £1k around is that I could also miss out on large gains. I’d be sitting pretty if I’d just chosen Nvidia and ignored the rest.

Looking forward, I think the returns for the Magnificent 7 will differ. I believe that Nvidia will still rally, but at a much slower pace than over the past year. Given the market cap and size of the firm, it’s very unlikely to see another 179% move.

Yet I think the group as a whole will continue to push ahead. Companies like Apple and Alphabet are showing clearly how to monetise artificial intelligence. This includes the latest developers conference from Apple, showcasing new AI features in the iPhone. By keeping AI at the forefront of innovation, the stocks should keep gaining.

The major risk I see is a rush to safety from investors. If sentiment turns negative later in the year, these high growth names are likely to feel the full brunt of investor concerns.