Nvidia and the Magnificent Seven Have 'Immense Returns,' but Strategists Say There Are Risks

Nvidia has gained over 3,000% in the past five years alone — but the high returns of the AI chip maker and other tech giants in the Magnificent Seven ( Nvidia , Amazon , Apple , Meta , Microsoft , Google , and Tesla ), are not without their risks, warns an industry expert.

In a "Smart Investing" video interview published on Wednesday, Eric Beiley, executive managing director of The Beiley Group at Steward Partners, a wealth planning and investment strategy firm, weighed in on the Magnificent Seven's impact on the market.

"These handful of stocks have produced just immense returns," he said, highlighting Nvidia's over 100% stock growth year-to-date. "And returns over the last three, five years are staggering."

Related: Here's How Much Investing $10,000 in Nvidia When It Went Public Would Be Worth Now

An example of Nvidia's high returns occurred last week when CEO Jensen Huang cashed in on 1.3 million shares and netted $169 million , the most he's gained so far in a single month.

^{Nvidia CEO Jensen Huang. Photographer: I-Hwa Cheng/Bloomberg via Getty Images}

There are risks, though. Beiley pointed out that the Magnificent Seven drove "the majority of the return on the indexes."

In 2023, the Magnificent Seven returned 75.71% compared to the S&P 500's 24.23%. As of Tuesday, the group makes up about 35% of the S&P's market value and its combined stock has gained about 380% in the past five years.

This tremendous growth is "concerning" because any slowdown or weakness in these companies is "going to be very important," according to Beiley.

"These companies need to continue to produce strong revenues, earnings to keep this momentum going," he said.

Related: Nvidia Long-Term Employees 'Semi-Retired' Multimillionaires

Investors are "obviously" going to keep buying Magnificent Seven stocks and keep getting rewarded — but extremely high valuations come with risks too, Beiley stated.

"You gotta be prudent when you invest in these companies," he cautioned.

Some of these risks were on full display two weeks ago when Nvidia stock dropped 16% and the company lost more than $500 billion in market cap in three days — more than the entire market cap of Samsung or Costco .

The stock recovered and is at about 178% year-to-date at the time of writing.

Related: Nvidia CEO Jensen Huang Turned Down a Merger Offer in the Company's Early Days, According to Insiders. Here's Why.