The ‘Magnificent Seven’ (M7): Assessing their contribution to the performance of US publicly listed firms

In March 2000, the dot-com bubble, inflated by investor exuberance around the internet’s adoption, burst. Of the companies able to survive the following recession, a few came to reach the stratospheric expectations of the early internet era. Two decades on, this rise is most visible in the performance of the S&P 500. Year to date, this index rose 19%, helped significantly by the performance of the ‘Magnificent Seven’ (M7) stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – rising 71%. The M7 now accounts for 29% of the total S&P 500 valuation (Goldman Sachs 2023). The M7 may dominate US stock market headlines, but how much value do they create relative to other publicly listed US firms?

With data on over 2,000 public firms headquartered in the US, the Crux of Capitalism project derives bottom-up insights that are well-suited to address this question. We present our findings from 2012 onwards, the year that the last member of the M7, Meta Platforms, went public.

Three findings stand out: First, the M7’s share of total economic profit (EP) has grown markedly. In 2012 these companies represented 14% of publicly listed firms’ total EP. By 2020, this had scaled rapidly to a peak of 37%, before falling back to 32% in 2022. This outperformance was led by a subset of the M7: Alphabet, Amazon, Apple, Meta, and Microsoft. Nvidia and Tesla, despite growing rapidly, represent only 5.2% of the total EP by the M7 in 2022. Tesla in particular had recurring negative EP until 2017, driven largely by losses from operations. Despite the excitement over this class, it was the ‘Big Tech’ companies in the M7 that had a disproportionate impact on EP.

Second, in terms of ‘traditional’ accounting profits (AP), the M7’s share is notably lower, comprising 16% of total AP in 2022. Moreover, in that year, while the M7’s EP exceeded their AP by 15%, together the other publicly listed firms in the US had a total EP of around 53% lower than their total AP. The difference largely stems from adjustments made to derive EP, particularly adding back voluntary spending. Once voluntary R&D outlays are accounted for, the sheer scale of the M7’s economic value creation is laid bare.

R&D spending by the M7 has been steadily growing both in magnitude and as a share of total R&D by publicly listed US firms. In 2012, the share of R&D spending of the M7 was around 12% of all R&D spending. By 2022 this had grown to 38%. Their economic performance is consistent with Vivarelli et al’s finding that R&D by high-tech firms allows for larger productivity gains than in other segments of the economy. It is possible that the M7’s high R&D spend allows them to innovate faster than competitors and may cement their leading market position.