For more than two years, the bulls have held firm control of the reins on Wall Street. Last year, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite respectively returned 13%, 23%, and 29%, with all three galloping to numerous all-time highs.

The fuel for this bull market rally includes (in no particular order):

But perhaps the prevailing theme that helps tie these catalysts together has been the ongoing outperformance of the “Magnificent Seven.”

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Image source: Getty Images.

The Magnificent Seven take center stage

The Magnificent Seven describe seven of Wall Street’s largest and most-influential companies. Listed in order of descending market cap, these companies are:

  • Nvidia (NVDA -3.12%)
  • Apple (AAPL -0.39%)
  • Microsoft (MSFT -0.59%)
  • Amazon (AMZN -0.24%)
  • Alphabet (GOOGL 1.13%) (GOOG 1.16%)
  • Meta Platforms (META 1.74%)
  • Tesla (TSLA -1.41%)

As noted, these are companies that have an extensive history of outperforming Wall Street’s widely-followed S&P 500. Whereas the S&P 500 has nearly tripled over the trailing-10-year period, through Jan. 23, the worst-performing Magnificent Seven component over this time is Alphabet’s Class A shares (GOOGL), which are higher by 639%. Meanwhile, Nvidia stock is up by more than 27,400%!

NVDA Chart

NVDA data by YCharts.

But what makes the Mag-7 stocks special is their sustainable moats and/or competitive advantages:

The steady outperformance of the Mag-7 and their laundry list of competitive advantages hasn’t gone unnoticed by Wall Street’s leading money managers. Many of these stocks are fixtures in the portfolios of billionaire investors.

But only one is the top holding for billionaires Chase Coleman of Tiger Global Management, Philippe Laffont at Coatue Management, and Stephen Mandel at Lone Pine Capital. 

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Image source: Getty Images.

Meet the most “Magnificent” stock of them all

Thanks to required quarterly Form 13F filings with the Securities and Exchange Commission, investors have the ability to track which stocks the most-prominent money managers are buying, selling, and holding. The largest holding for Coleman’s, Laffont’s, and Mandel’s respective funds is social media maven Meta Platforms (total shares owned and percentage of portfolio as of Sept. 30):

  • Tiger Global Management: 7,465,139 shares (17.41% of portfolio by market value)
  • Coatue Management: 3,694,259 shares (7.86% of portfolio by market value)
  • Lone Pine Capital: 1,891,337 shares (8.08% of portfolio by market value)

For what it’s worth, Meta was also the second-largest holding for billionaire Terry Smith of Fundsmith, who’s commonly referred to as “Britain’s Warren Buffett.” Given Meta’s outperformance of Microsoft stock since Sept. 30, Meta would be Fundsmith’s largest holding today, as well, assuming no change in share ownership.

What is it that’s compelled three (or maybe even four) of Wall Street’s most-successful billionaire money managers to lift Meta Platforms to the top of the pedestal?

For starters, Meta’s moat in the social media space appears insurmountable. The company’s family of apps, which includes Facebook (the most-visited social site), Instagram, WhatsApp, Facebook Messenger, and Threads, collectively lure 3.29 billion daily active users.  Advertisers are well aware that no other social media platform offers them access to more eyeballs, and are thus willing to pay a premium price to Meta to get their message(s) in front of users.

To build on this point, Meta has established a successful blueprint for developing new assets and monetizing them only when the time is right. For instance, Meta launched Threads in July 2023 and quickly hit 100 million monthly active users (MAUs). However, CEO Mark Zuckerberg and his team held off on monetizing Threads with ads. With the app now topping 300 million MAUs, Meta is free to turn on the spigot and begin generating advertising revenue. 

Billionaires Coleman, Laffont, and Mandel are likely also intrigued by Meta’s higher-growth initiatives, which include AI and the metaverse. Meta announced in January 2024 that it’d be purchasing 350,000 Hopper GPUs (a total order of around $10.5 billion) from Nvidia to fuel its AI-data center ambitions.  Meta has been making generative AI solutions available to advertisers, which can generate/tailor messages to users.

In a historically pricey stock market, it’s also nice to have a buffer. Meta closed out the September quarter with $70.9 billion in cash, cash equivalents, and marketable securities, and has been averaging north of $21 billion in net cash generated from operations per quarter. This is a company that has the ability to take risks few others can -- yet there’s still enough cash left over to pay a dividend and buy back stock.

The final piece of the puzzle that helps explain why billionaires Chase Coleman, Philippe Laffont, and Stephen Mandel favor Meta Platforms over all other stocks is its valuation. Even though Meta’s forward price-to-earnings (P/E) ratio of 25 marks its highest valuation multiple in years, the company’s price-to-earnings-growth ratio (PEG Ratio) of 1.08 is essentially on par with its average PEG Ratio reading of 1.09 over the trailing-five-year period.

In simpler terms, if you take into account Meta’s accelerated earnings growth, the company’s P/E ratio relative to its growth is still quite attractive. Though no stock moves up in a straight line, the future appears bright for “Magnificent” Meta.