This month’s chart looks at the Magnificent Seven group of stocks and explores whether – rather than being a bubble akin to the dotcom era – their high valuations are justified by high earnings.
There has been a boom in the growth of Artificial Intelligence (AI) in recent years, particularly within the US and fuelled in large part by the so-called “Magnificent Seven”.
This group of technology giants comprising Apple, Microsoft, Alphabet (Google’s parent company), Amazon, Nvidia, Meta, and Tesla are all household names who have been investing heavily in generative AI, cloud computing, and advanced hardware.
Investors in these firms have been well rewarded, with the cohort delivering an average return of around 227 per cent over the past five years (to the end of August 2025), far outpacing the broader S&P 500 stock market index’s growth of 97 per cent over the same period.
Nvidia has become the first company in history to surpass a $4 trillion market capitalisation; a figure larger than the GDP of the UK or France. Its share price has soared by more than 2800 per cent since the start of January 2020, driven by its dominance in AI chips and data centre technology.
But this remarkable growth has led some investors to question whether AI is forming a “bubble”. Comparisons have been made to past market events such as the dotcom bubble of the early 2000s – when internet stocks soared and then crashed – and the global financial crisis in 2008, which was triggered by excessive risk-taking in housing and credit markets.
However, September’s chart of the month provides evidence to the contrary: Figure 1 shows the earnings per share (EPS) of the Magnificent Seven compared to the rest of the S&P 500. EPS measures how much profit a company makes for each share of its stock. A higher EPS generally indicates stronger financial performance.
Figure 1: Magnificent Seven versus S&P 500 (EPS)
Past performance is not a guarantee of future performance. For illustrative purposes only.
Note: Data is normalised with factor 100 as of April 30, 2015. Magnificent Seven is represented by the Bloomberg Magnificent Seven Total Return Index. The other 493 companies are represented by Bloomberg 500 excluding Magnificent Seven Total Return Index.
Source: Aviva Investors, Bloomberg. Data as of August 31, 2025.
The Magnificent Seven’s EPS has been significantly higher, especially since the launch of ChatGPT in November 2022, suggesting that their growth is supported by strong fundamentals rather than pure speculation.
Following the Q2 earnings season, the Magnificent Seven’s combined earnings are nearly 15 times greater than those of the remaining S&P 500 companies. One standout performer was Microsoft – the world’s second most valuable company – which beat analyst estimates with reported revenue of $76.4 billion (versus consensus of $73.81 billion) and EPS of $3.65 (versus $3.37), representing 18 per cent year-on-year revenue growth. A key driver of this uptick was strong growth in its cloud platform, Azure.
These businesses are investing vast sums in future growth, known as capital expenditure (or capex). Microsoft forecasts $100 billion in capex for the next fiscal year and Alphabet has announced $85 billion spending for 2025. Despite this, share prices have risen in line with earnings.
This alignment suggests valuations remain steady, indicating that the current AI-driven growth is underpinned by fundamentals rather than speculation. In short, a steady valuation does not point to a bubble.
