In case you haven’t noticed, the bulls have the power on Wall Street. The mature stock-driven Dow Jones Industrial Averagebenchmark S&P500and growth-driven Nasdaq Compositeall rose to multiple record highs by 2024.
While broader themes such as the artificial intelligence revolution, stock split euphoria and better-than-expected corporate earnings have fueled this rally, the foundation for this two-year (and still growing) bull market was laid by the “Magnificent seven.”
The Magnificent Seven represent some of Wall Street’s largest and most influential publicly traded companies, including:
These are companies that, for the most part, have impenetrable moats. For example, Alphabet’s Google is responsible for at least 90% of the monthly share of global searches dating back more than nine years. Meanwhile, Apple’s iPhone is the leader in domestic smartphone market share, Amazon Web Services is the world’s top cloud infrastructure service platform, and Meta Platforms attracts more daily active users to its sites than any other social media company.
Image source: Getty Images.
Despite these competitive advantages, Wall Street has mixed views on where some of the Magnificent Seven members are headed. Based on two Wall Street experts’ price targets, the following Magnificent Seven stocks could fall up to 98%!
The first part of the Magnificent Seven that at least one respected Wall Street expert sees losing a majority of its value is AI kingpin Nvidia.
In an interview with Fox News digital in May, economist and financial author Harry Dent pointed out that Wall Street is in the “bubble of all bubbles,” which he expected would cause the market to bottom out in 2025. “I think we’ll see the S&P fall. % from the top, and the Nasdaq 92%. A hero stock like Nvidia, as good as it is, and it’s a great company. [goes] Down 98%. Boy, this is over,” Dent said.
While Dent’s prediction of a 98% decline completely ignores Nvidia’s cash flow and the successful operating segments it had long before AI became a driving force on Wall Street – for example, graphics processing units (GPUs) for gaming and cryptocurrency mining, together with virtualization software — I believe he recognizes the potential bubble that Nvidia stock is in.
A perfect example: In at least 30 years, we have never witnessed a technology, innovation or trend of the next big thing that managed to avoid a bubble burst at the beginning of its expansion. Including the advent of the Internet, investors have consistently overestimated the acceptance and mainstream adoption of supposedly breakthrough innovations for decades. So far, there is no indication that artificial intelligence will be the exception to this unwritten rule.
Besides history being an issue, Nvidia will face a meaningful increase in competition on all fronts. While most investors focus on external competition, such as Advanced micro devices As we bring AI GPUs to market, the real threat could come from within.
Mag-7 members Microsoft, Meta Platforms, Amazon and Alphabet are Nvidia’s four largest customers by net revenue. All four of these respective market leaders are developing AI GPUs in-house for use in their data centers. Even if Nvidia’s chips remain superior in computing, the cost and accessibility benefits of these internally developed chips should ultimately deprive Nvidia of valuable data center real estate.
It would also be wise not to overlook the role that US regulators have played in limiting Nvidia’s potential. In 2022 and 2023, regulators restricted Nvidia’s ability to export its AI GPUs to China, the world’s second-largest economy by gross domestic product. This is a big deal, as China has consistently brought Nvidia billions of dollars in annual revenue.
While I don’t expect Nvidia to approach a figure close to Harry Dent’s prediction of a 98% peak-to-trough decline, I do believe that AI as a technology needs to mature, leading to significant disadvantage of Nvidia’s shares.
Image source: Tesla.
The other part of the Magnificent Seven that could collapse, based on a lone Wall Street analyst’s prediction, is the electric vehicle (EV) maker. Tesla(NASDAQ: TSLA).
Last week, Tesla shares soared following the release of third-quarter corporate results. In particular, optimists focused on an increase in gross margin, decisive year-over-year growth in the company’s energy segment and a more than tripling of free cash flow (FCF) year-over-year to $2.74 billion. Despite this and previous company reports, GLJ Research founder and former Tesla owner Gordon Johnson has a very specific price target of $24.86 per share, which would imply a 90% downside.
In a number of previous interviews with CNBC, Johnson has focused on Tesla’s recent earnings decline, questioned the safety of its vehicles and warned of growing competition in the EV space as reasons to believe Tesla stock will the mid-$20s could rise. S. While, again, I don’t believe this extreme downside target will be achieved, there are plenty of reasons to believe Tesla could lose half or more of its value in the coming quarters/years.
Increasing competition in a highly cyclical sector is an obvious problem. CEO Elon Musk has previously noted that his company’s pricing strategy is dictated by demand. But even as Tesla has cut the retail price for Models 3, S, This suggests that Tesla has a clear demand problem.
Another problem with Tesla is the quality of its earnings. On an annual basis, 51.3% of pre-tax revenues can be traced to automotive regulatory credits and cash interest income. These are two unsustainable income categories that have nothing to do with the core of the business.
To add fuel to the fire, Tesla’s $2.74 billion in FCF grew thanks to some perfectly legal, if easy to spot, accounting tactics. A notable increase in accounts payable and accrued liabilities explains much of this recent increase in free cash flow. This is to say that Tesla’s EV activities are not leading to what appears to be improved business results.
While Elon Musk has played a major role in Tesla’s rise, he may be just as guilty of sending his company’s stock significantly lower. The vast majority of Musk’s promises have not materialized. The problem is that many of these innovations/promises are built into Tesla’s valuation. If these failed visions (for example, Musk has been promising full self-driving level 5 every year for a decade) were removed from the company’s valuation, a large portion of its market capitalization would evaporate.
Tesla’s valuation is the icing on the cake for pessimists. While some investors prefer to think of Tesla as a “technology stock,” the car companies are critical to the company’s success, revenue and profits. Auto stocks typically trade at a single-digit price-to-earnings ratio, and no higher than 80 times next year’s earnings, like Tesla.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Alphabet, Amazon and Meta Platforms. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
2 ‘Magnificent Seven’ Stocks That Could Plunge Up to 98%, According to Select Wall Street Experts, originally published by The Motley Fool
