For the third year running, the best-performing “Magnificent 7+” stocks, which we define as the top 10 companies on the Nasdaq, were all AI related.
If anything in 2025, the gap between the “AI haves” and the “AI have less” in the Mag 7 became larger.
Two of the biggest winners were AI chipmakers Broadcom and Nvidia. Both boomed ahead of the market as the demand for AI data centres showed no signs of slowing.
But Google was the true darling of 2025, in our view.
Why Google won 2025
Google started the year in the sin bin amid fears of the “death of Search”. But it flipped the narrative late in the year. The launch of Gemini 3 – which is outperforming ChatGPT on every measure, according to the widely-followed league table compiled by LM Arena – re-established Google as the apex predator.
Google’s vertical integration means it will ultimately win the AI war, we believe. Unlike competitors, Google builds its own chips, runs its own data centres, and controls the data stack. This allows it to get costs down and margins up.
The worst performing Mag 7+ stocks in 2025 were the peculiar mix of Costco, Netflix, and Amazon.
- Costco’s valuation finally snapped despite its stunning free cash flow growth (see table above). The market lost its stomach for pricing a supermarket on a 2Y forward PE ratio of 40 (see table below). So while Costco’s business is operationally excellent, the market wants to see the valuation compress a little.
- Amazon is fighting a war on two fronts. Its retail dominance is being challenged by China’s Temu (particularly in Australia), while AWS faces brutal price competition from Azure and Oracle. This shows up in its shrinking free cash flow CAGR, (see table above).
- Netflix free cash flow growth has also stunned, but its flatlining subscriber growth and expensive Warner Bros acquisition has spooked the market that it’s running out of growth options.
Valuations: the “venture capital” premium
Valuing the Mag 7 with conventional PE ratios becomes trickier by the day as doing so ignores the “side bets” they make (optionality) – which are becoming increasingly important.
Take Nvidia. Nvidia doesn’t just sell chips, it also functions like a world-leading venture capital firm.
Nvidia has invested billions into startups like Mistral (sovereign AI models) and CoreWeave (GPU cloud infrastructure). These VC-style bets have been a double whammy: they support Nvidia’s ecosystem while also being highly profitable investments in their own right.
These VC-style bets are a major wealth creation engine for Nvidia. Yet they show up nowhere in Nvidia’s earnings or P/E ratio.
If we do look strictly at earnings, the Mag 7 grew at roughly 2x the pace of the rest of the market in 2025.
Brokers forecast this gap will close in 2026, but we remain sceptical of the consensus forecast. Wall Street has underestimated the Mag 7 growth arc for a decade, with these firms surprising continuously on the upside. We see no reason to bet against it now.
Key theme for 2026: Apple’s MedTech pivot
In 2026, the most underpriced optionality possibly lies in Apple’s pivot to health.
While the market studies iPhone cycles, Apple has quietly secured regulatory wins to treat the Apple Watch as a legitimate medical device. The holy grail, non-invasive blood pressure and heart monitoring, is closer than ever.
The global market for consumer medical wearables is projected to surpass US$400 billion in the coming decade. If Apple successfully transitions the Watch from a fitness device to a legitimate piece of medical technology, they unlock a high-margin revenue stream that could rival the iPhone itself.
The risk: internal disruption
The biggest risk to the Mag 7 stocks are each other, in our view.
The Mag 7 stocks that suffered most in 2025 did so because other giants swam into their lanes. Nvidia faced headwinds as Google deployed its own TPU chips; Amazon and Netflix are bludgeoning each other on streaming.
Because of this “cannibalisation risk,” we believe the best solution is to own the basket. Buying the Mag 7 on an equal-weighted basis may hedge you against this internal disruption.
The most magnificent pick for 2026: Google
If we had to pick one winner for 2026, it is Google. It possesses the ultimate combination of moat and optionality:
- Search is stronger: AI overviews in Chrome have eaten into OpenAI’s market share.
- Cloud growth: Google Cloud is the fastest-growing “hyperscaler.”
- YouTube: it is stealing a march on Twitch in live streaming.
- Waymo: the self-driving unit is finally hitting scale, presenting a massive “Blue Ocean” opportunity.
In a world where AI is the only game in town, Google holds the best cards.
Disclaimer:
The issuer of units in ETFS Magnificent 7+ ETF (HUGE) (ARSN: 685 356 183) is the responsible entity of the Fund, being ETF Shares Management Limited (ABN 77 680 639 963, AFSL: 562 766). The product disclosure statement (PDS) for the Fund contains all of the details of the offer of units in the Fund. Copies of the PDS are available from ETF Shares Management Limited or at www.etfshares.com.au. In respect of each retail product, ETFS has prepared a target market determination (TMD) which describes the type of customers who the relevant retail product is likely to be appropriate for. The TMD also specifies distribution conditions and restrictions that will help ensure the relevant product is likely to reach customers in the target market. Each TMD is available at www.etfshares.com.au
The information provided in this document is general in nature only and does not take into account your personal objectives, financial situation or needs. Before acting on any information in this email, you should consider the appropriateness of the of the information having regards to your objectives, financial situation or needs and consider seeking independent financial, legal, tax and other relevant advice.
Investment in any product issued by ETFS are subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value or return of an investment will fluctuate and an investor may lose some or all of their investment. Past performance is not a reliable indicator of future performance
