Will ‘Electric Eleven’ stocks outshine the Magnificent Seven?
Never heard of the Electric Eleven? Tech analyst at ‘Goldman North’ names the E11 portfolio of innovators creating their own buzz amid the artificial intelligence boom.
18th March 2024 12:23
by Nina Kelly from interactive investor
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A highly regarded tech analyst in the US has unveiled what he calls the “Electric Eleven”, a new group of stocks which could rival the “Magnificent Seven” tech giants in terms of share price performance.
Mark Mahaney is head of internet research at New York investment bank Evercore, which the Financial Times has dubbed the bank “Goldman North”, implying it is a competitor to the famous Wall Street firm downtown. He’s covered internet stocks for 25 years and spent 17 years as a top 3-ranked analyst by Institutional Investor for his research.
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Like the Magnificent Seven stocks, all 11 companies in the E11 basket are tech firms that are AI-related. The “Electric 11” are: Alphabet Inc Class A (NASDAQ:GOOGL), Meta Platforms Inc Class A (NASDAQ:META), Netflix Inc (NASDAQ:NFLX), Shopify (NYSE:SHOP), Spotify Technology SA (NYSE:SPOT), Uber Technologies Inc (NYSE:UBER), Airbnb Inc Ordinary Shares - Class A (NASDAQ:ABNB), Amazon.com Inc (NASDAQ:AMZN), DoorDash (NASDAQ:DASH), The Trade Desk Inc Class A (NASDAQ:TTD), and Booking Holdings Inc (NASDAQ:BKNG).
Three of the tech titans in the Electric 11 - Amazon, Alphabet and Meta - are also in the Magnificent Seven. The other four are Apple Inc (NASDAQ:AAPL), Tesla Inc (NASDAQ:TSLA), NVIDIA Corp (NASDAQ:NVDA) and Microsoft Corp (NASDAQ:MSFT).
More than half the companies in the E11 are household names, including Amazon, Google-owner Alphabet, Facebook firm Meta, TV streaming service Netflix, ride-hailing app Uber, music streamer Spotify and holiday rentals firm Airbnb.
Perhaps less familiar to investors are Canadian e-commerce firm Shopify, food delivery service DoorDash, ad-buying platform The Trade Desk, and online travel agency Booking Holdings.
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For the Electric Eleven, the best performers year to date are Meta up 39.8%, DoorDash, up 35.3%, and Spotify at 35%. The weakest performer is Booking Holdings, down 1.9%.
In a TV interview with Fox Business, Mahaney said that the E11 group “are sustaining 20% premium earnings growth and I think [they] can do it for the next couple of years. It’s a high-quality group.”
He added: “There’s a debate about how many AI winners there can be. I’ve got a wonderful example of a company that’s really successfully deployed AI to improve its services for both consumers and for businesses, and that’s Meta.
“I’ve seen this dramatic acceleration in its growth rate because of AI deployments. To me, it’s an example of if Meta can do it, other companies can too.”
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Despite the stellar performance of AI stocks owing to excitement over the potential widespread application, some are sceptical about the ability to select winners in the nascent field of artificial intelligence. One of them is Terry Smith.
In Smith’s annual letter to investors in January, the star fund manager, who oversees the £22.7 billion Fundsmith Equity fund, expressed doubt that investors will be able to handpick winners from AI breakthroughs, and suggested that early “winners” may not be long-term success stories.
Other concerns about investing in Al-related stocks include the geopolitical risk posed by China whose appetite for semiconductor chips supports such firms. If demand from China falters or is stymied in any way following political intervention, it could hurt the mega-cap tech names.
Other issues with tech stocks include a potential lack of diversification in investor portfolio owing to overexposure to the theme. The Magnificent Seven, for example, now accounts for just over 27% of the S&P 500 index.
The fortunes of the Magnificent Seven have been mixed. Nvidia, for example, smashed expectations with its four-quarter results and is up 82.3% year to date, while at the other end of the spectrum, Tesla is down 34.1%, and Apple 7%.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.