Lo Toney: AI Divides Magnificent Seven into Winners and Laggards

The Magnificent Seven are being split by artificial intelligence into distinct groups rather than rising as a unified trade, Plexo Capital founding managing partner Lo Toney said on CNBC’s “Squawk Box” this week.

Days earlier, CNBC’s Jim Cramer had encouraged investors to take another look at the group, contending that years of AI expenditure are beginning to yield returns. “I think it’s time to buy,” Cramer said.

How AI Is Dividing the Magnificent Seven

Toney disagreed with the idea of again considering the seven stocks as a single trade. He stated that two factors now differentiate them: control over infrastructure and the capacity to profit from it.

Hyperscalers, the cloud giants constructing enormous AI data centers, include Google, Microsoft, and Amazon according to Toney. These companies still have to demonstrate that their expenditure is worthwhile, a challenge also confronting other Nasdaq stocks that already doubled this year.

Meta and Apple belong to another category, according to Toney. They do not require AI as a separate business; rather, they employ it to enhance their existing advertising and hardware operations.

Tesla represents a third scenario. The company is converting AI into tangible products and services, a route that brings its own regulatory and profitability uncertainties, Toney noted.

Nvidia (NVDA) also stands separately. Toney said that the chipmaker generates profits while its customers work out the economics on their own. That role now reaches into software as well.

On September 3, Nvidia agreed to acquire the open-source AI platform Hugging Face for roughly $12.9 billion. Its upcoming earnings still serve as the most obvious indicator of whether that investment is yielding broad returns.

Google’s Edge in Artificial Intelligence

Using his analysis, Toney selected Alphabet’s Google (GOOGL) as his top choice. The company owns its data centers and custom chips while generating revenue from AI via search, YouTube, cloud, and its autonomous driving division, Waymo.

He noted that Google shares have risen about 42% over the past 12 months, while the Wall Street consensus target suggests roughly 25% further upside—a larger spread than most peers Jim Cramer has recently favored.

As artificial intelligence transforms their business models, not all Magnificent Seven stocks will move in unison. Certain companies still need to show investors that spending leads to profit, while Toney contends that others are already reaping benefits.