Are the Giants Truly Mispriced?
Even with murmurs of an AI bubble burst in the wind, the Magnificent Seven tech stocks stand as undervalued amidst the broader market tumult, as analyzed by esteemed financial institution JPMorgan.
The ‘Magnificent Seven’ – Alphabet Inc (GOOG, GOOGL), Amazon.com Inc (AMZN), Apple Inc. (AAPL), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), and Tesla Inc (TSLA) – jointly constituting nearly 30% of the S&P 500 market cap, have managed to retain reasonable valuations relative to the average S&P 500 prices over the last five years, as reported by Business Insider.
“The group is currently trading less stretched than a few years ago, given earnings delivery,” the JPMorgan analysts highlighted. They anticipate that these stocks could potentially outshine traditional cyclical investments in the wake of general earnings letdowns.
Despite a remarkable 27% surge in net income growth for the ‘Magnificent Seven’ in 2023, JPMorgan acknowledged that the narrow market dominance wielded by these conglomerates is, in essence, “ultimately unhealthy.”
The Shifting Sands of Market Dominance
Why the Analysis Matters: Amid circulating speculations on the twilight of the ‘Magnificent Seven’ epoch marked by a disparity in the fortunes of these seven emblematic stocks, the group’s grasp over the stock market has been receding. Their contribution to the S&P 500’s recent gains has plummeted to a meager 45%, a stark decline from the commanding 88% recorded back in April.
Concurrently, Goldman Sachs has voiced concerns regarding the excessive concentration in the U.S. stock market and the prominent sway held by its largest tech stocks, urging investors to broaden their geographical investment horizons.
Despite prevailing concerns, market pundits like Ryan Detrick, the chief market strategist at Carson Group, have contended that the ‘Magnificent Seven’ stocks are far from being ensnared in a bubble.
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