The Magnificent Seven, a consortium of leading tech companies propelling substantial growth in the market, is facing a potential realignment as Wall Street reevaluates Tesla’s standing while considering Netflix as a possible substitute. Recently, Tesla saw its stock soar by the largest intraday margin in more than ten years, leading to discussions about its role in the Magnificent Seven. This group, which also features Nvidia, Alphabet, Amazon, Microsoft, and Meta, is projected to achieve an 18.1% increase in year-over-year earnings by Q3 2024.
Even though Tesla reported a 17% rise in its profits for the third quarter, skepticism persists on Wall Street regarding its future. Detractors suggest that the fundamentals of the company might be exaggerated, drawing comparisons to bitcoin or tech ventures during the dot-com boom. CEO Elon Musk frequently positions Tesla as a technology firm, but its projects in AI and robotics are anticipated to require years to produce results.
For now, the company needs to prioritize enhancing its core automotive operations to distinguish itself amidst its Magnificent Seven counterparts. Tesla’s recent lag and high valuation place additional pressure on its position, as merely 40% of analysts endorse the stock as a Buy, making it the least popular option in the group.
Uncertainty Surrounding Tesla’s Role
On the other hand, Netflix has emerged as a formidable candidate to fill Tesla’s shoes. Ayako Yoshioka from Wealth Enhancement Group pointed out that Netflix “appears to be the most logical choice” given its remarkable profits and reliable projections. The stock has climbed 55% since the beginning of the year, trailing only Nvidia and Meta in performance.
Jesus Alvarado-Martinez from Portfolio Wealth Advisors highlighted that being part of the Magnificent Seven entails being a “cash flow machine,” a description that fits Netflix perfectly. The streaming service’s free cash flow has consistently increased, hitting $2.19 billion in Q3, compared to $1.89 billion the previous year. Jessica Reif Ehrlich, an analyst at Bank of America, views Netflix’s expanding free cash flow as a trigger for stock growth, forecasting it to hit $8.9 billion in 2025 and $11.16 billion in 2026.
As of Friday, 87% of analysts monitoring Netflix consider it a Buy. While Tesla’s role within the Magnificent Seven remains unclear, Netflix’s recent successes have reminded investors of its past appeal, strengthening the argument for a potential shift in this elite tech collective.
