The importance of this septet cannot be overstated.with Tesla is an exception, all companies are among the top 7 companies in the world by market capitalization. Additionally, JPMorgan said the group's overall weight in the S&P 500 index is 29%, giving it a 34% share of this year's expected profit growth.
In fact, the Magnificent Seven is “more like a country than a corporation in terms of size and profitability.” The group's market capitalization is US$13.1 trillion, twice the size of the Japanese stock market, and its profit over the past 12 months is about half the profit generated by the group. Chinese stocksaccording to data from Deutsche Bank.
The Magnificent Seven's dominance of U.S. stocks and their outsized influence on global stock market performance is amplifying concentration risk and fueling fears that a dangerous bubble is brewing.
The Microsoft logo is displayed on an office building in midtown Atlanta, Georgia, on February 21st. Microsoft is the world's largest company by market capitalization, and together with six other tech giants, it boasts a market capitalization twice that of the Japanese stock market. Photo: EPA-EFE
Bank of America says the group's staggering 140 percent rise since December 2022 is due in part to earlier bubbles, particularly the “Nifty Fifty” boom in U.S. stocks in the late 1960s and early '70s. It is pointed out that the rise from the trough to the peak is approaching. The spectacular rise of Japanese stocks in the late 1980s.
The stakes are highest for Nvidia, the semiconductor company that controls more than 80% of the market for specialized artificial intelligence (AI) chips and has contributed to the wild rise in U.S. stocks more than any other stock. its stock price has risen a dizzying 360% since the beginning of 2023, but its price-to-earnings (P/E) ratio remains at just under 90x (27x the S&P 500). Expectations for future earnings growth are very high.
Hedge fund Chameleon Global Capital Management sees overwhelming bullish sentiment and the sobering of Nvidia's discounted cash flow, which “nobody really cares about” in a raging bull market that is “probably in the 'tulip phase'” He points out that there is a troubling gap between the two and the actual analysis. A place where anything can happen. ”
There are undeniable risks. The hype surrounding AI – one of the main reasons many stock markets are underperforming – may subside. More importantly, the race to develop new chips for AI applications is bound to intensify.
There are also regulatory threats. The Magnificent Seven is on the front line as politicians and regulators come under pressure to: Regulate big tech platforms and crack down on anti-competitive behavior.
02:38
Apple supplier Foxconn builds 'AI factory' using chips and software from US hardware leader Nvidia
Apple supplier Foxconn builds 'AI factory' using chips and software from US hardware leader Nvidia
Results from Bank of America's latest monthly global fund manager survey revealed that long or overweight positions in the Magnificent Seven are the most crowded trades in the market. it will come down this year. A lot has to go right if the group's impressive performance is to continue.
But fears of another technology crash are overdone. First of all, today's economic boom is a far cry from the run-up to the bursting of the dot-com bubble in 2000, when many unprofitable companies without sound business plans went up in flames. In contrast, the Magnificent Seven make huge profits, have global influence, and dominate technological innovation.
Furthermore, while there are concerns about the group's high valuation, Goldman Sachs points out that it is more driven by profit growth. The Magnificent Seven was able to achieve excellent results in the following aspects. High interest rate environment “This is primarily due to the company's strong balance sheet and high profit margins,” Goldman Sachs said.
If anything, it's seven supercap growth stocks, excluding Tesla, whose stock prices are rising. became more unstable – It’s like a safe haven in a highly uncertain and unpredictable global economy. Many investors view the septet as a defensive and resilient company that can withstand economic downturns.
A graph titled “The Price Impact of Masked Tweets” will be featured in court in San Francisco on February 3, 2023. Investors who sued Tesla and its CEO Elon Musk claimed that an August 2018 tweet about taking the company private by “securing funding” was “indisputably false.” ”, causing a wild rise in Tesla's stock price and causing billions of dollars in damage.Photo: Bloomberg
If there is a bubble in the market, it is due to complacency.Investors still look to the US Federal Reserve lower interest rates This year, despite a re-acceleration of some measures to combat inflation, the labor market remains tight and the stock market is booming. Why would the Fed cut interest rates significantly in this environment?
Even more worrying, given the all-time highs and subdued volatility levels in stocks, it's hard to believe that the United States will have a crucial presidential election in nine months. Regardless of the outcome, which may not be clear for some time after the vote, there is little upside and a lot of downside for the market, making this an important election. The biggest underestimated risk.
Not all bubbles burst, especially those backed by strong fundamentals. The Magnificent Seven is not a threat to financial stability, but rather a driving force behind a huge structural trend. Investor complacency is the biggest risk to asset prices.
