Are the Magnificent Seven in a Bubble? Ask the Nifty Fifty

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Sometimes, a narrative dominates the financial/social media and promotes a mania among investors. The Magnificent Seven is a great example. Seven stocks – Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta – are media darlings favored by many investors. Fifty-plus years ago, the Nifty Fifty were the stocks to own. They held a similar place as the Magnificent Seven in investors' minds.

None of the Magnificent Seven companies existed in the heyday of the Nifty Fifty, but a unique valuation and narrative thread aligns the companies.

The experience of the Nifty Fifty "bubble" and its longer-term resolution sheds light on high valuations, earnings growth, and future returns. For the most part, the high valuations of the Nifty Fifty were appropriate. Will we be able to say the same for the Magnificent Seven?

The Nifty Fifty

The Nifty Fifty was the nickname for a group of highly sought-after growth stocks during the late 1960s and early 1970s. Many of these companies were household names characterized by solid earnings growth, innovative business models, and apparent invincibility. Some prominent Nifty Fifty stocks included Coca-Cola, Kodak, McDonald's, Philip Morris, and Walt Disney.

The Nifty Fifty craze was fueled by optimism regarding the global post-World War II global economic expansion and the promise of American capitalism. Investors were enamored by the growth potential of large dominant companies and willing to pay hefty valuation premiums for their stocks. Traditional valuation metrics were ignored during the Nifty Fifty run. Instead, investors cared more about potential growth.