If I’d invested £1,000 in these 7 magnificent US stocks 5 years ago, here’s what I’d have now!

The Bank of America recently called a group of US stocks ‘The Magnificent Seven’, after the 1960s film.

The septet — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla — are tech stock giants. Their combined market cap is currently $9.9trn.

If I’d invested £1,000 in each of them five years ago, my initial £7,000 stake would now be worth £19,750.

That’s an impressive average annual growth rate of 23%.

But this hides significant differences between the individual performances. Since May 2018, Tesla’s stock has soared by nearly 900%. During the same period, Meta’s increased by ‘only’ 33%.

Unfortunately, I didn’t invest in any of these companies. Is now the time to make amends?

Seeing into the future

There has been much debate recently about the impact of artificial intelligence. Although there are opposing views, the huge potential for this rapidly evolving technology appears to have been largely responsible for the rally in tech stocks over the past few months.

The Magnificent Seven have collectively seen a 60% increase in their market caps since the start of 2023. This has helped propel the NASDAQ 21% higher.

And I see no reason why this won’t continue.

The fortunes of these companies are closely aligned with economic growth and consumer optimism. Both of these are starting to recover.

According to the International Monetary Fund, the world economy is expected to grow by 2.8% this year, and 3% in 2024. Global headline inflation is starting to fall. And central banks around the world are predicted to start cutting interest rates from early 2024.

Helping to boost revenues and earnings, I think this will push tech stocks back towards their all-time highs. As recently as January 2022, Apple became the world’s first $3trn company. Currently, it’s worth $300m less.

A price worth paying?

But not everyone agrees with me. Morgan Stanley has issued a note to its clients warning of “many technical signals and fundamental factors” that point to the recent rally faltering soon.

And these stocks are not cheap.

The seven currently have a price-to-earnings (P/E) ratio of 30, compared to 17 for the US market as a whole. A high P/E ratio might suggest that a stock is overvalued.

But tech stocks — particularly the very largest — have historically had higher earnings multiples than those in more traditional industries.

What should I do?

My share portfolio doesn’t have any exposure to the US tech sector. I’ve therefore missed out on previous rallies in these types of stocks. But FOMO (Fear of Missing Out) is not a sensible basis for making investment decisions.

However, I’m looking many years ahead. I believe these mega tech companies — with their strong balance sheets and internationally recognisable brands — are well positioned to benefit from a global economic recovery.

And, despite their size, I see plenty of room for further growth.

For example, nearly 80% of the world’s smartphone users don’t have an Apple iPhone. Tesla only has a 2% global automotive market share. And half the world’s population have never used one of Meta’s technology platforms. Yes, they will face increased competition. But history has proven that it’s very hard to compete successfully against any of these global titans.

I’m therefore going to target the sector — possibly via a tracker fund — when I next have some spare cash.