Mag 7 ETFs Look Unstoppable Heading Into 2025

The so-called "Magnificent Seven" stocks have been on a spectacular ride this year and are one of the big forces driving the broad market rally. This has been possible primarily due to the artificial intelligence (AI) boom and reduced rates. Roundhill Magnificent Seven ETF MAGS, which offers concentrated exposure to the “Magnificent Seven” stocks, is up 71% this year, just behind investors' darling bitcoin ETFs (read: 5 ETFs That Deserve Special Thanks in 2024). 

Four of the stocks — Alphabet (GOOGL, GOOG), Tesla TSLA, Amazon AMZN, and Apple AAPL — are hovering at new all-time highs. Although NVIDIA (NVDA) has shown some weakness in recent sessions, slipping into correction territory (down 10% from its recent peak), it is still up more than 170% this year. Meta Platforms (META), which hit a fresh high last week, gained 76% this year, while Microsoft (MSFT) is up 20%.

As of Dec. 11, the Magnificent Seven market-cap valuation surpassed $18 trillion for the first time ever, according to Dow Jones Market Data. With a combined weightage of 31% in the S&P 500, these stocks are poised to see more gains in 2025. 

We have cited several reasons for the expected solid performances in 2025: 

Unstoppable AI Boom: The AI boom is fueling the rally in stocks, with companies investing considerable sums in the technology. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. The generative AI market is poised to explode at a CAGR of 42% to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022, according to a new report by Bloomberg Intelligence (BI). 

Lower Rates: As the tech sector relies on borrowing for superior growth, borrowing more money for further initiatives is cheaper when interest rates are low. The Fed slashed interest rates two times over the past two months, bringing down the benchmark rate to 4.5%-4.75%. The prospect of further lower interest rates bodes well for technology stocks. 

Defensive Play: Citi strategist suggests that Magnificent Seven stocks could function as a defensive play in 2025 amid market uncertainty. These stocks' dominance in terms of earnings strength, cash flow resilience and market leadership positions them as anchors during periods of volatility.

Solid Fundamentals: These mega-cap tech stocks have superior fundamentals compared to the rest of the S&P 500. They boast faster growth rates, higher profit margins, cleaner balance sheets and reasonable valuations (see: all the Technology ETFs here).

Any Challenges Ahead?

The torrid pace of appreciation in the value of these stocks has led to overvaluation concerns. On an equal-weighted basis, the Magnificent Seven stocks are currently trading at 40 times their expected earnings over the next 12 months, according to Dow Jones Market Data. This is in contrast to the S&P 500’s 22 times forward earnings.

MAGS in Focus

Roundhill Magnificent Seven ETF is the first-ever ETF that offers investors equal-weight exposure to Magnificent Seven stocks. It has amassed $1.5 billion in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 1 million shares.

Other ETFs

MicroSectors FANG+ ETN (FNGS): This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the seven stocks. MicroSectors FANG+ ETN has a Zacks ETF Rank #3.

Vanguard Mega Cap Growth ETF (MGK): It tracks the CRSP US Mega Cap Growth Index. It holds 71 securities in its basket, with the “Magnificent Seven” collectively accounting for 56% of the total assets. MGK has a Zacks ETF Rank #2 (Buy).

Invesco S&P 500 Top 50 ETF (XLG): Invesco S&P 500 Top 50 ETF measures the cap-weighted performance of the largest companies on the S&P 500 Index, reflecting the performance of the U.S. mega-cap stocks. It holds 53 stocks in its basket, with the “Magnificent Seven” accounting for a combined 52.5% share. XLG has a Zacks ETF Rank #2 (read: Analysts Turn More Bullish on S&P 500 for 2025: ETFs to Bet On).

iShares S&P 100 ETF (OEF): iShares S&P 100 ETF offers exposure to the 101 largest U.S. companies. The Mag 7 stocks account for a combined 45% share. OEF has a Zacks ETF Rank #2.
 

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