Out of a group of company stock known as the “Magnificent Seven” — yes, just like the movie — there are three that Congressional lawmakers have decided they no longer want to hold on to. The seven I’m talking about are Microsoft, Apple, Alphabet, Nvidia, Amazon, Meta Platforms, and Tesla. All of these are big, big names and most of you will be familiar with at least a few of them.
According to Sean Williams of the Motley Fool, “Within the last month, the iconic Dow Jones Industrial Average, broad-based S&P 500, and innovation-powered Nasdaq Composite all ascended to fresh highs. While there have been pockets of strength in a variety of sectors and industries, the “Magnificent Seven” have been widely credited with lifting these major stock indexes to record levels.”
The Magnificent Seven are a grouping of the largest and most influential publicly traded companies in the United States. Williams provides a list of them in descending order according to their market cap:
- Microsoft (MSFT 0.26%)
- Apple (AAPL 0.98%)
- Alphabet (GOOGL 0.06%) (GOOG 0.15%)
- Nvidia (NVDA -3.17%)
- Amazon (AMZN -1.62%)
- Meta Platforms (META -1.15%)
- Tesla (TSLA 10.94%)
All of these corporations have smashed the benchmark S&P 500 when it comes to returns over the trailing decade. The amazing performances by these companies on the market is why so many investors, including individuals who are serving in both chambers of Congress, have decided to run and snap up shares of them for their investment portfolio.
Each one of these companies is a leader in its own industry as you will see below:
- Microsoft’s Windows remains the undisputed leader in global desktop operating systems, while Azure is No. 2 in worldwide cloud infrastructure service spend.
- Apple’s iPhone accounts for more than half of all U.S. smartphone market share.
- Alphabet’s Google was responsible for a 91% share of global internet search in March, while wholly owned streaming service YouTube is the second most-visited social site on the planet.
- Nvidia’s A100 and H100 graphics processing units (GPUs) make up a 90% (or greater) share of GPUs deployed in high-compute data centers.
- Amazon’s e-commerce marketplace is No. 1 globally in online retail market share. Meanwhile, Amazon Web Services is the worldwide No. 1 in cloud infrastructure service spend.
- Meta Platforms owns the most sought-after social media real estate, with Facebook, WhatsApp, Instagram, and its other apps collectively attracting almost 4 billion monthly active users.
- Tesla is North America’s leading producer of electric vehicles (EVs), and is the only pure-play EV maker to have achieved recurring profits.
If these companies are doing super hot, why in the world would members of Congress send three of them to the gallows by selling their shares? That is a good question we shall examine as we go along.
The first of the seven that has been put out to pasture is Nvidia.
Although Former House Speaker Nancy Pelosi (D-CA) and her venture capitalist husband have made a small fortune purchasing call options in the infrastructure backbone of the artificial intelligence (AI) revolution, when it comes to the purchasing and selling of common shares, members of Congress were decidedly sellers of Nvidia stock in 2023. Collectively, $1.76 million shares were sold by lawmakers last year.
The biggest seller of all, according to data from Capitol Trades, has been House Rep. Dan Meuser (R-PA). Between May 5, 2023 and Aug. 14, 2023, five sell orders were executed for Meuser, ranging from just $1,000 to $15,000, up to a sell order of $250,000 to $500,000.
One of the main reasons that Nvidia’s stock might be headed for lower prices is that every major trend over the course of the last thirty years has gone through an early bubble. Williams says in the article that investors tend to overestimate both the uptake and adoption of brand new innovations in a given industry, and artificial intelligence is not going to be any different.
Williams says the second reason is due to the scarcity of the company’s highly in-demand GPUs having driven the price of the A100 and H100 chips through the roof over the course of 2023. With Nvidia ramping up production to the market place and additional competitors getting into this highly lucrative space, GPU scarcity will then decrease, which will likely cause Nvidia’s gross margin to retrace.
The third issue, which I believe is Nvidia’s biggest hurdle, is that its top four customers (Microsoft, Meta Platforms, Amazon, and Alphabet) are all developing in-house GPUs of their own. These Magnificent Seven components account for roughly 40% of Nvidia’s sales, and we’re probably witnessing a peak in orders from these industry titans.
The second stock lawmakers couldn’t wait to chuck overboard is Microsoft. This one will probably seem unusual as it was one of the most purchased stocks last year. In fact, $1.97 million shares were purchased by folks in Congress. However, altogether, Congress also sold $11.61 million shares for a network of $9.64 million worth of shares in the company sold altogether in 2023.
- House Rep. Kevin Hern (R-OK) dumped between $1 million and $5 million in shares on Jan. 4, 2023.
- House Rep. Suzan DelBene (D-WA) sold between $250,000 and $500,000 in shares on both March 1, 2023 and Aug. 30, 2023.
- Senator Tommy Tuberville (R-AL) shed $250,000 to $500,000 worth of Microsoft stock on June 20, 2023.
- House Rep. Michael McCaul (R-TX) sold multiple rounds of Microsoft stock that commonly ranged between five-and-six figures throughout 2023.
So why was this so popular of a sell among lawmakers? Profit-taking. Shares of Microsoft gained a whopping 57 percent in 2023, with much of the success being attributed to the investments the company made in AI. There’s also the fact that Microsoft tended April 19th at a multiple of close to 32 times forward-year earnings.
It’s also possible that lawmakers are concerned about the possibility of a bubble popping up in the artificial intelligence space.
The third of the Magnificent Seven getting dumped is Meta Platforms, a huge name in the social media realm, which was one of the most actively sold communication services providers last year.
The culprit for the lion’s share of this selling activity in Meta is Michael McCaul, Congress’ second most-active stock trader (1,826 trades completed in 2023). In addition to dumping shares of Microsoft on numerous occasions, McCaul sold shares of Meta 16 times last year, based on data provided by Capitol Trades.
As with Nvidia and Microsoft, profit-taking is a logical reason why lawmakers headed for the exit in 2023. Meta was one of the top-performing megacap stocks last year, with its AI ties clearly providing a boost.
Another catalyst that may have encouraged members of Congress to pare down their stakes in Meta is the growing likelihood of a U.S. recession. Select predictive indicators and money-based metricssuggest a downturn in the U.S. economy may not be far off. Meta generated close to 98% of its revenue from advertising in 2023, and businesses aren’t shy about reducing their ad spending when trouble arises. Although recessions are short-lived, they could hit Meta harder than other Magnificent Seven components.
Members of Congress might have also been encouraged to sell their Meta stock due to the fact that social media is an extremely competitive industry to be involved with. One of the greatest threats to Meta’s place in the space is without a doubt TikTok, which might result in lower ad-pricing power for Facebook, which is one of the top platforms in the world.