A group of technology companies nicknamed the "Magnificent Seven" have a combined value of $17.2 trillion, which represents one-third of the entire value of the S&P 500 (^GSPC 0.11%). Their stocks delivered an average return of 60% during 2024, so they were responsible for a large portion of the 25% gain in the S&P:
In other words, investors who didn't own the Magnificent Seven stocks last year probably underperformed the broader market by a wide margin. Since the seven companies dominate different areas of the technology industry, including new segments like artificial intelligence (AI), they are likely to continue driving the S&P 500 higher.
But it's not all about massive capital gains, because some of the Magnificent Seven stocks also pay dividends. Below, I'll show you how much you could earn from a $350,000 investment split equally across the seven stocks.
AI, cloud computing, social media, electric vehicles, and more
AI is the key driver of value for most of the tech sector right now, which is why Nvidia (NVDA -1.10%) was the best performing stock in the Magnificent Seven last year. The company's graphics processors (GPUs) for data centers are the most powerful in the industry for developing AI models, and demand is outstripping supply because every tech company needs them to stay ahead of the competition.
Microsoft (MSFT -0.36%), Amazon (AMZN -0.32%), and Alphabet (GOOGL -0.71%) (GOOG -0.65%) are among Nvidia's biggest customers. They are filling their data centers with Nvidia's chips to develop their own AI software, but they also rent the computing capacity to millions of businesses and other AI developers for a profit. Those customers can also access state-of-the-art large language models (LLMs) from third-party companies like OpenAI and Anthropic via Microsoft Azure, Amazon Web Services, and Google Cloud.
Meta Platforms (META -2.31%) has embedded AI into its recommendation engines on Facebook and Instagram, in order to show users more of the content they enjoy viewing. This keeps them online for longer periods of time so they see more ads, which drives more revenue for Meta. The company will also launch its Llama 4 LLM this year which could be the most advanced in the industry.
Then there is Apple (AAPL -0.48%), which is on track to become the largest distributor of AI to consumers through its 2.2 billion active devices worldwide. The company just launched its Apple Intelligence software for owners of the latest iPhones, iPads, and Mac Computers, which introduced a suite of new AI-powered features. Apple Intelligence will create new opportunities to generate software revenue, but it might also encourage customers to upgrade their devices.
Finally, Tesla (TSLA -1.72%) might be known as one of the world's largest manufacturers of electric vehicles, but Wall Street is increasingly bullish on its full self-driving software (FSD), which could transform the company's economics. It will power the new Cybercab robotaxi, which will perform fully autonomous ride-hailing services to earn revenue for Tesla around the clock in the future.
Image source: Getty Images.
Five of the Magnificent Seven stocks pay dividends
The Magnificent Seven companies are cash-generating machines. Some of them make so much money that they can't possibly reinvest it all back into their businesses to drive growth, so they return it to shareholders instead. Dividends are the most common form of distribution, and they usually come in the form of quarterly payments.
Apple, Microsoft, Nvidia, Meta Platforms, and Alphabet pay dividends. They each have a yield of less than 1%, which represents the payout investors can expect each year, calculated based on the value of their investment:
MSFT Dividend Yield data by YCharts
Yields change regularly for two reasons: First, a company might raise or lower its dividend payment. Second, a stock might rise or fall in value, which would change its yield on paper. It doesn't mean the payout changes in dollar terms, it just changes as a percentage of the value of your investment.
Microsoft offers investors the highest yield, and although it seems small at face value, the company paid out a whopping $21.7 billion in dividends during its last fiscal year (ended June 30, 2024). Because Microsoft has such a large market capitalization of $3.1 trillion, that payout translates into a relatively small yield.
If you invested $350,000 in the Magnificent Seven (split equally with $50,000 invested into each stock), you would earn a 0.37% dividend yield on $250,000, while earning no yield on the other $100,000 (because Amazon and Tesla don't offer a dividend).
That translates to an effective yield of 0.26% on the $350,000, or an annual payment of $925. That seems like a paltry sum compared to what you could earn in a savings account with your bank right now, but it's a nice bonus on top of the incredible capital growth I highlighted earlier.
Stock buybacks are another way the Magnificent Seven returns money to shareholders
Dividends aren't the only way for companies to return money to shareholders. They can also use stock buybacks, where they purchase their own shares on the open market. This method shrinks the number of shares in circulation, which organically increases the price per share by a proportionate amount. In the end, each investor effectively owns a larger slice of the company than they did before, without lifting a finger.
Stock buybacks are also very flexible. Companies can execute them at a time of their choosing -- they aren't locked into paying a specific sum each quarter, as is the case with dividends.
Five of the Magnificent Seven companies have repurchased stock over the last four quarters, spending a combined $236.9 billion:
AAPL Stock Buybacks (TTM) data by YCharts
Amazon and Tesla don't have active buyback programs right now, but both companies are profitable so it might be an option for them in the future. Plus, Amazon actually repurchased $6 billion worth of stock in 2022, so it's no stranger to handing some cash back to investors.
With all of that said, the best reason to own the Magnificent Seven stocks is their incredible track record of delivering capital growth. It's likely to continue for the foreseeable future because the AI revolution is still in its early stages, and depending which Wall Street forecast you rely upon, it could add somewhere between $15.7 trillion (PwC) and $200 trillion (Ark Invest) to the global economy by 2030.
The Magnificent Seven will play an important role in creating that value, so investors should definitely consider owning these stocks for the long term. Any dividend payments along the way are just a bonus.
