2 “Magnificent Seven” Stocks That Can Drop Up to 98%, According to Select Wall Street Experts

In case you haven't noticed, the bulls are largely in control of Wall Street. The mature stock drive Dow Jones Industrial AverageBenchmark S&P 500and growth-driven Nasdaq Compositehave all risen to multiple record highs in 2024.

Although broader themes like the artificial intelligence (AI) revolution, stock split euphoria, and better-than-expected corporate earnings have fueled this rally, the foundation for this two-year (and counting) bull market was laid by the “Magnificent Seven.”

The Magnificent Seven represent some of Wall Street's largest and most influential publicly traded companies, including:

• Apple (AAPL 0.12%)
• Nvidia (NVDA 0.52%)
• Microsoft (MSFT 1.26%)
• alphabet (GOOGL 1.77%) (GOOG 1.66%)
• Amazon (AMZN 1.29%)
• Metaplatforms (META 2.62%)
• Tesla (TSLA -1.14%)

These are companies that usually have impenetrable moats. Google, for example, has had a monthly share of at least 90% of global searches for more than nine years. Meanwhile, Apple's iPhone leads the domestic smartphone market share, Amazon Web Services is the world's leading cloud infrastructure services platform, and Meta Platforms attracts more daily active users to its websites than any other social media company.

Despite these competitive advantages, Wall Street has mixed views on where some members of the Magnificent Seven are headed next. Based on price targets from two Wall Street experts, the following Magnificent Seven stocks could plunge as much as 98%!

Nvidia: Implicit minus of up to 98%

The first member of the “Magnificent Seven” in which at least one respected Wall Street expert loses a large part of his value is the AI ​​boss Nvidia.

In an interview with Fox News Digital In May, economist and financial writer Harry Dent pointed out that Wall Street was in the “bubble of all bubbles,” which he expected would cause the market to bottom in 2025. “I think we will see the S&P fall 86% from the top and the Nasdaq 92%. A hero stock like Nvidia, as good as it is, and it's a great company. [goes] decreased by 98%. Boy, this is over,” said Dent.

While Dent's forecast of a 98% decline completely ignores Nvidia's cash flow and the successful business segments that the company had long before AI became a driving force on Wall Street – e.g. B. Graphics processing units (GPUs) for gaming and cryptocurrency mining virtualization software – I think he recognizes the potential bubble that Nvidia stock could be in.

To give a perfect example, we haven't seen a breakthrough technology, innovation or new trend in at least 30 years – an event that burst the bubble at the beginning of its expansion. For decades, including the advent of the Internet, investors have repeatedly overestimated the spread and acceptance of supposedly groundbreaking innovations among the general public. So far, nothing suggests that artificial intelligence will be the exception to this unwritten rule.

Aside from history being an issue, Nvidia will face a significant increase in competition on all fronts. While most investors focus on external competition, such as: Advanced micro devices As we bring AI GPUs to market, the real threat could come from within.

Mag 7 members Microsoft, Meta Platforms, Amazon and Alphabet are Nvidia's four largest customers by net sales. All four of these respective industry leaders are internally developing AI GPUs for use in their data centers. While Nvidia's chips continue to be superior in terms of computing power, the cost and accessibility advantages of these internally developed chips are likely to ultimately deprive Nvidia of valuable data center space.

It would also be wise not to overlook the role of US regulators in limiting Nvidia's potential. In 2022 and 2023, regulators limited Nvidia's ability to export its AI GPUs to China, the world's second-largest economy by gross domestic product. This is a big problem considering China has consistently provided Nvidia with billions of dollars in annual revenue.

While I don't expect Nvidia to come anywhere close to Harry Dent's prediction of a 98% peak-to-trough decline, I do believe that AI as a technology will need to mature, which will lead to that significant Downtrend in Nvidia shares.

Image source: Tesla.

Tesla: Implied downside potential of up to 90%

The other component of the Magnificent Seven that could collapse, according to a single Wall Street analyst's prediction, is the electric vehicle (EV) maker. Tesla (TSLA -1.14%).

Last week, Tesla shares surged following the release of third-quarter operating results. Specifically, the optimists focused on an increase in gross margin, key year-over-year growth in the company's energy segment, and a more than tripling of free cash flow (FCF) year-over-year to $2.74 billion. Despite this and previous financial reports, Gordon Johnson, founder of GLJ Research and long-time Tesla bear, has a very specific price target of $24.86 per share, which would represent a 90% decline.

In several previous interviews with CNBC, Johnson focused on Tesla's recent earnings decline, questioned the safety of its vehicles and warned of growing competition in the electric vehicle space, as there is reason to believe Tesla's stock could hit the mid-$20s. Brand could rise S. While, again, I don't think this extreme downside target will be reached, there are enough reasons to believe that Tesla could lose half or more of its value in the coming quarters/years.

Increasing competition in a highly cyclical industry is an obvious problem. CEO Elon Musk has previously noted that his company's pricing strategy is driven by demand. But even though Tesla has reduced the selling price of Models 3, S, This suggests that Tesla has a clear demand problem.

Another problem with Tesla is the quality of its earnings. Year to date, 51.3% of its pre-tax income comes from automotive regulatory credits and interest income on its cash. These are two unsustainable income categories that have nothing to do with the core of the business.

To add fuel to the fire, Tesla's FCF grew by $2.74 billion due to completely legal, if easily spotted, accounting tactics. A significant increase in accounts payable and accrued liabilities explains much of this recent increase in FCF. This means that Tesla's EV activities are not leading to seemingly improved operating results.

Although Elon Musk has played a large role in Tesla's rise, he may be just as guilty of driving down his company's stock significantly. The vast majority of Musk's promises have not been fulfilled. The problem is that many of these innovations/promises are built into Tesla's valuation. If these failed visions (e.g. Musk has promised fully Level 5 autonomous driving every year for a decade) were excluded from the company's valuation, much of its market capitalization would disappear.

Tesla's valuation is the icing on the cake for pessimists. While some investors prefer to think of Tesla as a “tech stock,” its automotive business is critical to the company's success, sales, and profits. Auto stocks typically trade at single-digit price-to-earnings (P/E) ratios and not above 80 times forward earnings, like Tesla.