The “Magnificent 7” refers to the group of the U.S. tech giants, including Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA). All have seen their market caps increase recently as Big Tech continues to dominate the U.S. stock market’s landscape.
However, three of the Magnificent 7 stocks are recommended as hard sells, for good reason. An unprecedented concentration of market value in a handful of tech behemoths raises significant concerns. Analysts worry about potential risks to both the U.S. and global stock markets.
Yet, this notion has been rejected by JPMorgan (NYSE:JPM) analysts.
“There is a concern over the very strong outperformance of the Magnificent Seven, but we note that the group is currently trading less stretched than a few years ago, given earnings delivery,” the bank’s analysts said.
In light of this analysis, many other analysts have expressed concerns that this Big Tech bubble may burst soon. Among the Magnificent 7 stocks, these three stand vulnerable given their AI exposure and sector-specific concerns.
Apple (AAPL)
Apple (NASDAQ:AAPL) shares recently dipped to their lowest in over four months. Concerns are growing over the tech giant’s artificial intelligence (AI) initiatives and its challenging business in China.
In early March, the stock witnessed five consecutive sessions of losses. Also, Apple’s flagship product – iPhone – is likely to see little-to-no growth in 2024. According to CounterPoint Research, AAPL witnessed a 24% year over year (YOY) decline of iPhone sales in China during the initial six weeks of 2024.
This drop is particularly concerning given that China represents over 15% of Apple’s revenue. And, the region already experienced a 13% sales decrease in the most recent quarter. Hence, Wall Street analysts are increasingly worried about Apple’s position in AI compared to its peers.
Apple’s stock performance has been disappointing year to date (YTD). With a 10.3% decline, it significantly trails behind the S&P 500‘s gains. For many, Apple shares are at a crucial juncture, possibly losing their allure on Wall Street.
This sentiment follows the discontinuation of Apple’s electric vehicle (EV) project and a lackluster launch of the Vision Pro mixed reality headset.
Tesla (TSLA)
One of the biggest stock market stories in 2024 has been Tesla (NASDAQ:TSLA). It stood among the worst performers in the entire S&P 500 sector. Shares are down more than 34% since the start of 2024. Tesla stock weakness is a result of tepid demand for EVs as well as the company’s lofty market valuation.
Recently, the stock downturn has been accelerated after Wells Fargo cut their rating on Tesla stock to underweight. Basically, that is equivalent to sell. In this case, analysts expect Tesla shares to underperform the market and likely head lower over the course of 2024.
“We expect volumes to be flat in 2024 & down in 2025. In the wake of px cuts are lower lease residuals, disgruntled customers & the possible loss of the luxury brand premium,” analysts wrote. “We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions.”
Wells Fargo’s price target suggests a downside risk of nearly 30% from current Tesla stock price.
Alphabet (GOOGL)
Alphabet’s (NASDAQ:GOOG, GOOGL) shares are up less than 1% this year, underperforming the benchmark S&P 500. The company is trailing its biggest competitor Microsoft which has been able to roll out its own AI products more quickly.
Recently, the stock dropped after Google’s AI-powered image generation tool – Gemini – yielded responses that were seen as inappropriate. In response, Alphabet decided to pause the rollout of its widely-anticipated tool as it works to improve its output.
Furthermore, users point out the AI’s flawed image generation (such as depicting Black Vikings, an Asian woman in German World War II military attire, and a female Pope) raise concerns about the model’s accuracy and sensitivity. Thus, Google issued an apology and explained that despite efforts to ensure diversity in Gemini’s outputs, its training did not adequately prevent inappropriate content.
Moreover, shares fell after recently announced Q4 earnings. The weakness was attributed to the company’s core advertising business not meeting expectations. This couples with growing concerns about the emergence of generative AI technologies influencing the future of internet search.
These worries stem from the potential of generative AI to transform how users interact with search engines, possibly reshaping the online advertising landscape that Google has dominated for years. As a result of these developments, Alphabet is the cheapest Magnificent 7 stock.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
