The “Magnificent 7” mega-cap tech stocks—Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla—have dramatically outperformed the broader market, driven primarily by extraordinary earnings growth fueled by the AI revolution. According to a striking chart released by Goldman Sachs this week, the trailing 12-month earnings per share of these tech giants has surged far beyond the S&P 500, demonstrating that their stock price dominance reflects fundamental business strength rather than speculative excess.
Since its April 2023 launch, the Roundhill Magnificent Seven ETF has delivered an impressive 129% return, more than doubling the S&P 500’s 48% gain over the same period. Goldman Sachs strategist Peter Oppenheimer emphasized that this outperformance stems from “powerful fundamental growth rather than irrational exuberance,” highlighting the solid earnings foundation underlying these valuations.
The earnings disparity is remarkable: the Magnificent 7 stocks are expected to have achieved 33% earnings growth in 2024, compared to just 3% growth for the rest of the S&P 500. This follows an even more dramatic 2023, when these tech giants posted 36% earnings growth while the remaining S&P 500 companies experienced a 4% decline.
Nvidia stands as the poster child for AI-driven earnings expansion. The chipmaker’s trailing 12-month net income has skyrocketed from approximately $6 billion before the AI boom to over $60 billion today—a tenfold increase directly attributable to surging demand for AI computing infrastructure and graphics processing units essential for training large language models and running AI applications.
Looking ahead, while the Magnificent 7 are projected to maintain their earnings leadership in 2025 and 2026 with growth rates of 18% and 16% respectively, the gap with the broader market is expected to narrow. The rest of the S&P 500 is forecast to achieve 11% growth in 2025 and 13% in 2026, suggesting a gradual normalization as AI benefits spread more broadly across the economy and other sectors catch up in their digital transformation efforts.
Key Quotes
Encouragingly, the dominance of the largest US technology companies has reflected powerful fundamental growth rather than irrational exuberance
Peter Oppenheimer, a strategist at Goldman Sachs, made this statement in a Thursday note, emphasizing that the Magnificent 7’s market outperformance is justified by genuine earnings growth rather than speculative excess, providing reassurance to investors concerned about tech valuations.
the Magnificent 7 tech stocks are expected to have shown earnings growth of 33% in 2024, compared to just 3% growth for the rest of the S&P 500
This stark comparison from Goldman Sachs’ analysis highlights the massive earnings advantage that AI-focused mega-cap tech companies have achieved, demonstrating the tangible financial impact of artificial intelligence adoption and infrastructure development.
Our Take
This Goldman Sachs analysis provides crucial validation for the AI investment thesis while simultaneously signaling an important transition phase. The tenfold earnings expansion at Nvidia represents one of the most dramatic wealth creation events in modern corporate history, directly tied to a single technological shift. However, the projected convergence in growth rates between mega-cap tech and the broader market suggests we’re moving from the infrastructure phase of AI (benefiting chip makers and cloud providers) toward the application phase (benefiting AI users across industries). The narrowing gap doesn’t indicate AI’s diminishing importance—rather, it signals democratization and broader economic diffusion. Companies that successfully integrate AI into operations will increasingly challenge the Magnificent 7’s dominance, creating a more distributed opportunity landscape. The key question for 2025-2026 is whether these tech giants can maintain premium valuations as growth moderates and competition intensifies.
Why This Matters
This analysis underscores a critical inflection point in the AI-driven market transformation. The data validates that we’re witnessing genuine technological disruption rather than a speculative bubble, with artificial intelligence generating measurable, substantial profits for companies positioned to capitalize on it. Nvidia’s tenfold earnings increase demonstrates AI’s immediate economic impact, while the projected narrowing of the earnings gap suggests AI adoption is entering a broader diffusion phase across industries.
For investors, this signals that while the Magnificent 7 may continue outperforming, opportunities are emerging in companies integrating AI into their operations. For businesses, the message is clear: AI adoption is no longer optional for maintaining competitive positioning. The earnings divergence also has implications for market concentration and regulatory scrutiny, as a handful of tech giants increasingly dominate market capitalization. As AI capabilities democratize and spread beyond the initial winners, we may see a more balanced market structure emerge, though the first-movers have established formidable advantages in data, talent, and infrastructure that will be difficult to overcome.
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