Cathie Wood is one of the most famous investors today.
Their Ark Invest funds have attracted widespread attention for their bold and sometimes forward-looking calls, their futuristic positioning, and their willingness to share their thoughts in a way that few funds do.
In 2018, Wood famously said: Tesla (NASDAQ:TSLA) would rise to a pre-split share price of $4,000, a gain of more than 1,000%, but she was proven right just a few years later after Tesla shares exploded in 2020 and the company became profitable.
These days, Wood is less optimistic about the group of big tech growth stocks known as the “Magnificent Seven.” Microsoft, Apple, Nvidia, alphabet, Amazon, Metaplatformsand Tesla, although the electric vehicle manufacturer is now significantly smaller than its competitors.
In a recent thread about
Citing a Morningstar report, Wood said Mag 6 exposure among active large-cap growth managers in the U.S. is now 45% and believed smaller stocks will outperform, particularly those focused on disruptive innovation focus.
In particular, Wood once again expressed optimism about Tesla.
Is Cathie Wood right about the Magnificent Seven and Tesla?
Wood makes a good case for investors focusing on the Magnificent Seven or the Magnificent Six if you exclude Tesla. Due in part to the Magnificent Seven moniker, these stocks have attracted a surge in investor interest, especially since all seven of these stocks have soared over the past year.
The stock market is currently unusually concentrated in top stocks like the Magnificent Seven, but that arguably reflects the relative strength of these stocks and the potential growth from generative AI.
There are now also small-cap stocks like those represented by Russell 2000, have underperformed in part due to pressure from higher interest rates. Small-cap stocks tend to be more sensitive to interest rates because they are less likely to be profitable, rely more heavily on debt, and face a higher risk of bankruptcy.
However, the “Magnificent Seven” stocks have more to offer than just being trendy. All of these stocks, except Tesla, are generating growing profits, and they are all making significant investments in generative AI, the technology that many top CEOs and investors believe could be as disruptive as the Internet.
Wood remains convinced that Tesla is a buy based on its robotaxi strategy, but that is still largely speculation at this point. Tesla has not yet reached Level 5 as part of its full self-driving program and it is unclear when it will receive approval from regulators.
Tesla has announced a Robotaxi Day on August 8th when new information about its autonomous ride-sharing program could be unveiled, but the company is also notorious for delaying new products and innovations.
Is Tesla a better buy than the Magnificent Seven?
At this point, Tesla appears to be the riskiest stock among the Magnificent Seven, and there’s a reason why it’s one of the worst-performing stocks out there S&P 500 this year.
Sales and profits are falling amid a general slowdown in electric vehicles. Tesla is still trading at a significant premium to traditional auto stocks, a sign that investors are still pricing in the Robotaxi and other innovations like the autonomous robot Optimus.
On the other hand, Magnificent Seven shares may look expensive, but they deserve to trade at a premium. All are generating strong profit margins and solid revenue growth, with the possible exception of Apple.
Of the four “Magnificent Seven” stocks that reported earnings this quarter other than Tesla, only Meta Platforms declined in its report, despite strong results. Instead, investors balked at the company’s plans to increase its spending on AI. Meanwhile, earnings reports from Microsoft, Amazon and Alphabet rose, suggesting there is more room for upside in these stocks.
While Wood’s argument is intriguing, Tesla still faces significant headwinds from challenges in the electric vehicle market, while the rest of the Magnificent Seven stocks are performing well.
Given the choice between the Magnificent Seven or Tesla, investors are better advised to choose the Mag 7.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Jeremy Bowman holds positions at Amazon and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Forget the ‘Magnificent Seven’: Cathie Wood Says She Should Buy This AI Stock Instead was originally published by The Motley Fool