Magnificent Seven magic is ‘dead’, says top tech investor
For years, investors have relied on the Magnificent Seven to provide massive returns. Now, one of its biggest beneficiaries has said that strategy is “mostly dead”.
The small group of giant tech stocks has seen a tripling of its total weight in the S&P 500 over the last decade, and now makes up around a third of the index. The stocks grew an average of 63 per cent over 2024, and made up more than half of the investment returns for the entire index.
But the dominance of the Magnificent Seven could be waning. Fund manager Stephen Yiu, a well-known standard-bearer for the stocks that have transformed his fund’s returns, has trumpeted the end of their reign.
“That doesn’t mean they will disappear… but for them to outperform the markets like before, like what they did in the last five to 10 years, I think that that era is probably gone,” Yiu told City PM.
Since the start of 2025, the seven tech stocks have struggled to match their previous performance, with the Roundhill Magnificent Seven ETF, which weights all the stocks evenly, down over 14 per cent this year.
Without the Magnificent Seven to supplement stock market growth, Yiu warned that investors should expect investment returns to be “a lot lower” in the coming years.
“Let’s say the market was giving you more than 10 per cent a year, I think going forward, maybe that number would be five per cent. I’m making the numbers up, but it will be lower.”
In addition, the expectations that interest rates will remain higher than before the coronavirus pandemic had been killing off the high growth business model within tech since 2022, he argued.
“Unprofitable growth, which is capturing market share, spending a lot of money, giving freebies or free rides to anyone, I think that is gone forever until interest rates come back down, which, at the moment, doesn’t appear to be imminent,” added Yiu.
“If you’re not profitable as a business, no one is going to give you money to just take market share for nothing. I want to see profits. I want to see that you have a sustainable business model. So then that business formula to grow or to be successful, it’s basically finished.”
Yiu, who manages the £1.1bn Blue Whale Growth fund, had previously held stakes in Microsoft and Meta, but sold out of both of them this year, clinging on solely to Nvidia.
The fund manager first bought into Nvidia in 2021, when the company’s market cap was $500bn – it is now $2.8 trillion.
He has continued to back “the magnificent one” due to the high level of demand for its chips for AI infrastructure development and high spending in research and development.
While the Magnificent Seven stocks had partially been dented by US president Donald Trump’s sweeping tariffs, the companies had been on a decline since the start of the year, when Chinese AI competitor DeepSeek was unveiled.
Despite a wider investor exodus from US stocks, Yiu continues to hold just one UK-listed company in his portfolio (London Stock Exchange Group), compared to around 15 American ones.
He explained that the problem was that with a “high conviction portfolio,” the manager looked to hold one-of-a-kind companies, and there were few substitutes for some of the US giants.
“We have both Visa and Mastercard,” he said as an example, and with only two companies in the world doing what they are doing, “you don’t have a competing alternative outside of America” he could buy.
Visa’s stock price has risen 11.2 per cent since the start of 2025, while Mastercard has jumped 7.7 per cent, compared to a four per cent decline in the S&P 500.
However, the manager was still looking outside of the US for opportunities, such as Italian defence firm Leonardo, which has seen its stock price surge more than 70 per cent since the start of 2025.
“Trump’s policies have created an opportunity for European defence companies to come into play,” he said, but said it was one of the few sectors outside the US he saw as appealing.
The most recent addition to the Blue Whale portfolio has been US private credit giant Apollo, which has entered its top ten holdings for the first time.
As the private credit sector has boomed amid a pullback of banks lending cash to match regulatory-required capital levels, Apollo is sitting on billions in ‘dry powder’ or committed capital, which is ready to be deployed.
As a money manager, Apollo is lending out investor cash rather than its own assets, allowing it to reap investment fees without taking on the level of risk that has plagued some banks from loans, Yiu added.