The Roundhill Magnificent Seven ETF is up only 5% year to date, trailing the S&P 500 and Nasdaq Composite. Tesla's more than 20% decline is the main drag, while Nvidia, Apple, Microsoft, Amazon, and Alphabet continue to post solid growth. A closer look at net income for some of the group shows gains inflated by investment stakes rather than core operations.
Tesla drags down an otherwise solid group
The Roundhill Magnificent Seven ETF (MAGS), which tracks the seven stocks exclusively, is up just 5% year to date, trailing the S&P 500 and Nasdaq Composite. Most components of the group are still up for the year, but Tesla's stock has dropped by more than 20% year to date, pulling the ETF's average down.
Tesla's profit margins keep narrowing despite rising revenue, and the company is losing ground to Waymo in the autonomous vehicle race, a segment central to its valuation. Meta Platforms has also had a tough stretch despite rising revenue, after a legal battle forced it to cap teens at two hours per day, combined, on Facebook and Instagram, extendable with parental permission. That change is unlikely to significantly affect Meta's financial results.
Alphabet, Amazon, and Microsoft continue to do well across industries, with their cloud platforms accelerating on artificial intelligence demand. Apple has been outperforming the S&P 500 on accelerated iPhone demand, and Nvidia continues to beat Wall Street forecasts.
Some earnings gains look better than they are
All seven companies posted higher revenue growth in the second quarter than the blended rate for the S&P 500, producing what look like attractive P/E ratios — Alphabet trades at a P/E of 17 and Amazon at 21. But those numbers don't tell the full story for every company.
Alphabet and Amazon both include gains from their investments in SpaceX and Anthropic in their net income figures, inflating earnings. Operating income, which the P/E ratio doesn't reflect, gives a clearer read: Alphabet's net income rose 298% year over year in the second quarter, but its operating income rose by only 30% over the same period. Microsoft and Nvidia use the same accounting approach, while Meta Platforms, Apple, and Tesla don't, so their P/E ratios more accurately reflect their underlying businesses.
Smaller companies are growing faster
Nvidia is the only Magnificent Seven stock posting exceptional revenue growth, with sales up 106% year over year in its fiscal 2027 second quarter, which ended July 26. Still, it takes far more capital for a $5 trillion company like Nvidia to grow tenfold than it does for a smaller firm with a far lower market cap to do the same.
Silicon Motion Technology and Nebius are both more than doubling revenue year over year, with smaller market caps and less name recognition than the Magnificent Seven. The tech giants carry less risk, but higher growth is available elsewhere for investors willing to look beyond them.
Source: Motley Fool
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