Tesla’s ‘Magnificent Seven’ fate questioned

The Magnificent Seven, a group of tech giants driving significant market growth, is undergoing a potential shake-up as Wall Street reassesses Tesla’s position and eyes Netflix as a possible replacement. Tesla’s stock recently experienced its biggest intraday jump in over a decade, prompting a reevaluation of its inclusion in the Magnificent Seven. The group, which also includes Nvidia, Alphabet, Amazon, Microsoft, and Meta, is expected to lead with an 18.1% year-over-year earnings growth in Q3 2024. Despite Tesla’s 17% increase in third-quarter profits, Wall Street remains skeptical about its future. Critics argue that the company’s fundamentals may be overhyped, with some likening it to bitcoin or tech companies during the dot-com bubble. CEO Elon Musk often categorizes Tesla as a tech company, but its AI and robotics ventures will likely take years to materialize. In the meantime, the firm must focus on improving its core auto business, setting it apart from its peers in the Magnificent Seven. Tesla’s recent underperformance and high valuation further strain its standing, with just over 40% of analysts rating the stock a Buy, making it the least favored in the group.

Tesla’s position in question

In contrast, Netflix has emerged as a strong contender to replace Tesla. Wealth Enhancement Group’s Ayako Yoshioka noted that Netflix “makes the most sense” due to its impressive earnings and solid guidance. The stock has surged 55% since the start of the year, behind only Nvidia and Meta. Portfolio Wealth Advisors’ Jesus Alvarado-Martinez emphasized that being a part of the Magnificent Seven is about being a “cash flow machine,” and Netflix fits the bill. The streamer’s free cash flow has steadily climbed, reaching $2.19 billion in the third quarter, up from $1.89 billion a year earlier. Bank of America analyst Jessica Reif Ehrlich sees Netflix’s growing free cash flow as a catalyst for the stock and projects it to rise to $8.9 billion in 2025 and $11.16 billion in 2026. As of Friday, 87% of analysts covering Netflix rate it a Buy. While Tesla’s fate in the Magnificent Seven remains uncertain, Netflix’s recent performance has reminded investors why it was once a favorite, bolstering the case for a potential reshuffling of the dominant tech group.