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These stocks are poised to lead tech beyond the ‘Magnificent Seven’


Many stock investors feared last year that companies with a disruptive impact on technology would continue to underperform, due to higher interest rates and a weaker macroeconomic backdrop. This uncertainty created a unique entry point for investors into some of the most interesting parts of the innovative tech ecosystem, particularly in software and semiconductors.

Excitement around generative artificial intelligence (AI) dominated U.S. equity-market sentiment and wealth creation in 2023. The greatest winners were the “Magnificent Seven” tech stocks — Apple
Meta Platforms

and Tesla

— which experienced huge share-price gains and drove 70% of the absolute performance of the Nasdaq Composite Index
last year. This price return was not only extraordinary but warranted: earnings per share for these companies rose at least 50%.

Smaller tech stocks have not fared nearly as well. Over the past two years, the MSCI ACWI Global Small Cap Tech index is down 5%, owing to a weaker spending backdrop and pressure on multiples from higher rates. With worldwide information-technology (IT) spending growing below its long-term averages at 2.9% in 2022 and 3.5% in 2023, the tech sector undergrew its normalized trajectory.

Multiples for smaller tech stocks also were under pressure as the 10-year U.S. Treasury bond rate
moved from 1.6% at the start of 2022 to 3.9% at the end of 2023. Yet in 2024, the growth rate for worldwide IT spending could more than double. As the end of the Fed’s rate-hiking cycle nears, pressure on multiples should abate.

Against this backdrop, market leadership is likely to change. Investors should pay close attention to stocks beyond the Magnificent Seven. 

Valuations are particularly attractive in software, where the spread between the fastest- and slowest-growing companies remains remarkably slim. There are great opportunities for investors to invest in the most disruptive parts of the market at reasonable prices.

Pipelines are building for multiple companies across industries and applications, including next-generation data storage, cybersecurity and software-development tools. Bolstered by the improving spending environment and easing rate backdrop, the beneficiaries of AI can be expected to broaden beyond the Magnificent Seven. Innovation is accelerating rapidly, and companies are developing fresh solutions, products and applications that could accelerate growth. 

Investors seeking exposure to AI opportunities may want to focus on three particular areas:

Enablers of AI: Cloud providers and manufacturers of semiconductors and semiconductor capital equipment needed to help train large language models (LLMs). They may disproportionately benefit from huge demand and investment in cloud vendors and the buildout of AI data centers, and their fundamentals could accelerate.

Data and security: Software companies that finetune and secure vast amounts of data to be stored in the cloud for AI models. As companies digitize their infrastructure to overlay proprietary LLMs or leverage external LLMs, data-management demand could soar.

Applications: Software and other enterprises across various sectors that will leverage AI broadly. Demand should reaccelerate for enterprise software and innovative consumer-internet companies as AI products and services become more specialized and domain-specific.

Opportunities to invest in companies that could participate in a tech leadership change are varied. Tech stocks that we own in some of our Goldman Sachs Asset Management portfolios that could benefit from these growth trends in 2024 include:


: While almost 100% of AI processing occurred on Nvidia graphics processing units (GPU) in 2023, other semiconductor players can be expected to gain GPU market share in 2024. With its new MI300 chip, we believe AMD (Advanced Micro Devices) is well-positioned.

Micron Technology Inc.

): AI processing will require significantly more onboard memory. Micron is an emerging leader in HBM (high bandwidth memory), which in 2024 promises to drive a meaningful acceleration in fundamentals.


): The “” of Latin America is expected to continue gaining market share across e-commerce and digital payments.


: A leading provider of sales and marketing tools for SMBs (small and medium-sized businesses). As spending cyclically recovers in 2024, HubSpot should benefit from their products’ new generation of AI features and functions.

Goldman Sachs Asset Management currently has holdings in each of these four stocks. It is important for investors to consider dedicated allocations to tech going forward given the acceleration and pace of the industry’s disruption, leading to potential wealth creation opportunities.

Sung Cho is co-head of tech investing for fundamental equity at Goldman Sachs Asset Management.

More: AI hype around ‘Magnificent 7’ stocks is latest example of ‘big market delusion’

Also read: Too much ‘Magnificent 7’? A revenue-weighted index fund may be the solution.

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