The rise of the elite tech stocks has left the S&P 500 at its most concentrated in at least the last 100 years, according to Deustche Bank analysts, posing risks and spillovers for other assets.
Among fund managers surveyed by Bank of America, 61% said that "Long Magnificent Seven" is currently the most-crowded trade.
Lofty valuations could liken the current tech stock euphoria to the Dotcom bubble of 1999-2000, but the situation today is vastly different.
Investors have been piling into the 'Magnificent Seven' stocks—an elite group of some of the biggest technology companies—driving stocks to sky-high valuations, and major indexes to record highs, on expectations that artificial intelligence (AI)-related business growth will support continued gains.
"The Mag 7’s rise has left the S&P 500 at around its most concentrated in at least the last 100 years. Perhaps not since the bubble of 1929 have so few stocks had such high weightings to the overall market" Deutsche Bank analysts led by Jim Reid wrote in a research note Tuesday. "In turn, their future performance will likely impact the majority of global assets to some, or to a great, degree going forward."
While the AI boom, network effects and U.S. government incentives could propel the Magnificent Seven stocks further, analysts at Deutsche Bank cited heightened regulatory and public scrutiny of big tech companies and AI in general, as well as geopolitical factors, as potential headwinds.
"In addition, no-one quite knows how AI will pan out and who will win," Deutsche Bank said in the report. "Tech changes rapidly over time. Current high valuations assume Mag 7 will always win."
For now, that seems to be the prevailing wisdom. According to Bank of America's latest Global Fund Manager Survey, also released Tuesday, 61% of fund managers believe that "Long Magnificent Seven" is currently the most-crowded trade, with "Short China equities" coming in next at 25%. The survey showed that allocation to tech stocks is at its highest level since August 2020.
Unlike the Dotcom Bubble
Lofty valuations could liken the current tech stock euphoria to the Dotcom bubble of 1999-2000, according to the Man Institute, but the situation today is vastly different.
"The market is not rewarding just any unproven business models like it did during the tech bubble, this rally is driven by proven business models generating billions of additional free cash flow dollars," the institute wrote in a note Tuesday. "With substantial capital expenditure and an acceleration in Artificial Intelligence (AI) algorithms, there is enough momentum suggesting a robust foundation for current and (possibly even future) valuations to drive real economic growth."
Shares of all of the Magnificent Seven members fell on Tuesday, in line with a broader market decline prompted by data showing that U.S. inflation in January hadn't moderated as much as economists expected, which quelled optimism that the Federal Reserve could start cutting interest rates soon.
Nonetheless, shares of each of the group's members, with the exception of Tesla (down 12%), have posted significant gains over the past year. Nvidia shares have risen the most, tripling over the past year through Tuesday's close, while Meta has risen 156%. Shares of Amazon are up nearly 70%, while Alphabet and Microsoft have each gained about 50%, and Apple is up about 20%.
Do you have a news tip for Investopedia reporters? Please email us at
As a group, the Magnificent Seven appeared to stall in March, as they underperformed the S&P 500 by the most since December. The group rose just 1.6% on a market-cap-weighted basis, compared with the 3.1% advance for the index, according to Dow Jones Market Data.
Investors' concerns that the Magnificent Seven bubble may soon be about to burst could be completely unfounded, according to new analysis from JPMorgan, which argues the top-performing tech stocks are actually undervalued compared to rival stocks.
The “Magnificent Seven” might sound like the title of an old Western film or what a large family might name its group chat, but in finance the moniker is being used to describe a group of high-performing tech stocks: Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla.
We saw in the previous section that investing in the S&P 500 has historically allowed investors to double their money about every six or seven years. Your initial $1,000 investment will grow to $2,000 by year 7, $4,000 by year 14, and $6,000 by year 18.
So we've seen a big shift in this group of stocks known as the Magnificent Seven, which is Nvidia, Tesla, Meta, Apple, Amazon, Microsoft, and Alphabet.
The others include Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms Inc (NASDAQ:META), Nvidia Corp (NASDAQ:NVDA), Tesla Inc (NASDAQ:TSLA), Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Apple Inc (NASDAQ:AAPL).
The answer is yes. Five of the seven companies in the “Magnificent 7” are projected to be the top five contributors to year-over-year earnings growth for the S&P 500 for Q1 2024. These five companies (in order of highest to lowest contribution) are NVIDIA, Amazon.com, Meta Platforms, Alphabet, and Microsoft.
An overvalued stock has a current price that is not justified by its earnings outlook, known as profit projections, or its price-earnings (P/E) ratio. Consequently, analysts and other economic experts expect the price to drop eventually.
Berkshire Hathaway is the most expensive stock listed on U.S. exchanges. ...
The main difference between Berkshire Hathaway's Class A and Class B shares, aside from their price, is that the Class B shares don't have as much voting power as the Class A shares.
The stocks in this exclusive club include chip giant Nvidia, iPhone maker Apple, search leader Alphabet, social media powerhouse Meta Platforms, electric vehicle maker Tesla, e-commerce juggernaut Amazon, and tech titan Microsoft. Given their recent market leadership, investing in this group of stocks is tempting.
Dividends make Apple, Microsoft, and Nvidia even sweeter
Microsoft has the best dividend yield: $0.75 per share each quarter, which translates to an annual yield of 0.74%. Holding Apple stock will yield 0.49% annually, whereas Nvidia stock yields 0.03%.
FAANG is the acronym for the top five tech companies around the world. These are Facebook, Amazon, Apple, Netflix and Google. Before 2017, it was known as FANG, as Apple was included in the term in 2017 by Jim Cramer and Bob Lang who introduced and popularized this term in 2013.
AMD still has a way to go until it returns to anywhere near its last peak level of profitability in 2022. But if it gets back on a positive trajectory, shares could still be a reasonable deal at 46 times https://www.fool.com/terms/f/forward-pe/, though maybe not a particularly amazing value.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
:max_bytes(150000):strip_icc()/Screenshot2024-02-13at2.50.03PM-255b0f8a0ddb4feab09012fad9af239f.png "Investors Have Piled Into 'Magnificent Seven' Stocks—Why That May Not Be Good (1)")
