Mag. 7 experiencing 'outsized punishment' relative to success

Cracks are forming inside the group of tech stocks known as the Magnificent Seven with several players failing to rise to the occasion and being outshone by the remainder. Threadneedle Ventures Founder Ann Berry outlines why certain Mag 7 members are finding a harder time getting a footing in this environment.

"We're seeing outside punishment relative to the rest of that set, just to be more realistic... Look what we have seen with Apple (AAPL), and I think Apple has experienced two things that the rest of the group are at risk for," Berry tells Yahoo Finance. "Number one, Apple had the courage to shut down its EV business after spending a billion a year for the last decade by trying to develop an electric vehicle. You compare Meta (META) which has wasted over $40 billion on the metaverse... but just because Apple unveiled its bad news in this market, it's being punished very heavily, whereas Meta's been able to regain ground by gaining in other places such as AI

She also shares her investment outlook on stocks like Salesforce (CRM) and Palo Alto Networks (PANW)

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: It feels like the Mag Seven is already dead, right? And-- in terms of moving as a block, right? And people keep trying to find new cute catchphrases for--

ANN BERRY: Fab Four.

JULIE HYMAN: --the new thing. Yeah, exactly, Fab Four, whatever have you. I mean, what do you think? What do you like in that group? Or do you think that investors are better served by looking outside of that entirely?

ANN BERRY: Julie, here's what I find so interesting about what's happened with this Magnificent Seven group. I think we're now seeing outsized reward for good performance and good outlooks, and we're seeing outsized punishment relative to the rest of that set just for being more realistic. And I'll give you an example. Look what we've seen with Apple. And I think Apple has experienced two things that the rest of this group are at risk for. Number one, Apple had the courage to shut down its EV business after spending a billion a year for the last decade on trying to develop an electric vehicle.

You compare Meta, which has wasted over $40 billion on the metaverse since the end of 2019. But just because Apple unveiled its bad news in this market, it's been punished very heavily. Whereas Meta has been able to regain ground by gaining in other places, such as AI. Similarly, if you look at what's happened to Apple in China, a real fall in iPhone sales in China.

I think we're going to see some of that China weakness materialize when it comes to semiconductors. I think it's going to hit NVIDIA, it's going to hit some of the others. I think Apple's become a microcosm. And I think what we're going to see is the rest of this group at risk.

JOSH LIPTON: And talk about some picks, Ann, that I know you like. One is CRM, Salesforce. Why do you see opportunity there, Ann?

ANN BERRY: Well, I think with something like Salesforce, they've gone through this cycle, Josh, that Apple's going through at the moment, which is they're flushing their bad news. They've made some really difficult decisions around cost reduction. They've been making some very aggressive moves on pricing. They are doing short-term initiatives to try to gain market share down the line, that's going to hurt them in the near term but help them gain share in the long term

And so I'm seeing Salesforce take bold moves, self-medicating, to try and get through this tough period of adjustment. But at least they're doing it. So I want to go into these names before we see all the results come full throttle.

JOSH LIPTON: And I want to get you on here on this, Ann. Another interesting pick for you, you've got a cybersecurity pick. We were talking-- which is such an interesting space right now because we were talking to Rob Owens from Piper, and Rob's been covering the space for a few decades at this point. He said, listen, it's as healthy as he has ever seen it. But we were talking about how different names kind of reacting differently. You saw CrowdStrike, they reported, they're clearly capitalizing. Palo Alto Networks reported and very much disappointed, but that's a name you like, Ann. How come?

ANN BERRY: Well, Palo Alto Networks is one when I invest on the private side, specifically, Josh. In the cybersecurity sector. I, for example, invested in a deepfake detection company. The name that keeps coming back to me over and over and over again by those who are innovating and operating in cyber is Palo Alto Networks, as best in class.

And yes, they came out with a less than rosy outlook for the year. I would call it a realistic outlook for the year. One they can truly execute upon and deliver against expectations. And their share price got absolutely hammered for it. So I think that's a quality business, again, where we've seen this over punishment simply for delivering realistic news. Cyber is not going anywhere. Cybersecurity is absolutely here to stay. It is going to be a huge end market, by the way, for semiconductors and for upgraded chip requirements. So I want to go in on the best in class player, and that's Palo Alto.