“Rest in Peace, Magnificent 7,” said the analyst who coined Big Tech's nickname. Here's why:

“Rest in Peace, the Magnificent Seven” is the title of a new memo from Mike O’Rourke, chief market strategist at Jones Trading, who says he came up with Big Tech’s nickname in the spring of 2023.

It should be noted here that some believe that Michael Hartnett of Bank of America was the first to use the Mag 7 description in the alphabet.

google,

Amazon.com

AMZN,

apple

AAPL,

meta platform

meta,

microsoft

MSFT,

Nvidia

NVDA

and tesla

TSLA.

Regardless, O'Rourke's new reasoning is sound. Simply put, he thinks Nvidia and Meta should do their own thing in light of recent events. A scary couple, aren't they? …Okay, sure, we can work on that.

“Last April, we coined the term 'Magnificent Seven' to summarize the seven S&P 500 stocks that drove 88% of the index's gain in the first four months of 2023. ” he wrote in a memo released late Thursday. . “Today's events, like others that have occurred so far, have sown the seeds that will bring an end to that remarkable development in February 2024.”

The $277 billion market cap that Nvidia added on Thursday is a record, surpassing Meta's previous market cap of $196 billion, set earlier this month, O'Rourke said.

“These two companies, along with these movements, play a key role in defeating the Magnificent Seven as we know them,” he added. The main reason for this, he said, is that there was a clear discrepancy in Mag 7's earnings performance during this earnings season.

For example, NVIDIA stock is currently trading on 33x forward earnings estimates, which is easily achievable. “Historically, semiconductors have been a cyclical business and multiples should shrink as stock prices rise, but this is a market that eagerly gives trillion-dollar companies his 35x or higher multiples.” says O'Rourke.

As for Meta, O'Rourke believes the company is well-positioned to leverage AI, with Mark Zuckerberg's flirtation with the Metaverse under control, costs down and overall profitability high. . His forward earnings multiple is 24.4x, and only Google in the Mag 7 is lower.

“This earnings season, we've seen Nvidia and Meta Platforms trade at lower multiples and grow significantly faster than other Magnificent Seven names, so given their expensive multiples and mega-cap status, , other members would be seen as less attractive,” O'Rourke says.

As for Google's parent company, the company says the stock “offers a good combination of value and growth for the group, but it's not attractive unless it leverages AI.” And while Amazon trades at more than 40 times expected earnings with sales growth of 11% and earnings per share growth of 44%, “Neither metric tells the true picture of the company; The numbers are likely to be very different,” O'Rourke said. .

And Microsoft, a $3 trillion company with more than 35 times forward earnings, is expected to grow only 9.5% over the next four quarters.

Apple and Tesla are particularly ripe for being kicked out of the Magnitude 7 group, O'Rourke said.Apple stock has fallen since announcing its earnings earlier this month, but remains It trades at a multiple of 28 times forward earnings and is expected to grow just 1% this year. “For a giant company of this size, that's hardly attractive,” he says.

Tesla is facing a slowdown in the EV sector, and profits are expected to decline slightly, although the stock still trades at 65 times forward earnings. O'Rourke believes that the company has been able to maintain its Mag 7 status only because of its impressive past stock performance.

“When valuations and growth prospects become so distorted among management teams, investors may begin to pivot to winners and perhaps look elsewhere for new opportunities,” O'Rourke said. he says.

The days of the Magnificent Seven “exclusively driving the rise of the S&P 500” are coming to an end.

market

US stock index futures

ES00

YM00

NQ00

Benchmark US Treasury yield BX:TMUBMUSD10Y remains almost unchanged while rising.Dollar DXY is flat, oil prices are falling

C.L.

autumn and gold

GC00

It is trading at around $2,020 per ounce.

For market updates and practical trading ideas on stocks, options, and cryptocurrencies, visit Subscribe to Investor's Business Daily's MarketDiem.

buzz

warner bros discovery

WBD

Results will be announced before the opening bell.

intuitive machine

Runle

Shares soared 37% pre-market after the space exploration company's Odysseus spacecraft became the first commercial lander to successfully reach the moon.

block

square

delivered a windfall after the market closed on Thursday, with Square's parent company's stock up 13%.Reservation held

BKNG

The results were not very well received, and the stock price fell 9%.

There are no notable U.S. economic indicators released this Friday. Even Fed officials seem to be refraining from chatting.

best of the web

How German soccer fans took on investors and won.

Criticism of the Nasdaq is mounting as a trading frenzy hits penny stocks.

How Wall Street banks fought to maintain control of their lucrative but secretive trading business.

chart

The Nasdaq 100NDX rose 3% to a new all-time high on Thursday. The chart below from Bespoke Investment has a green blob showing all the times it has happened so far, the last time it happened on March 2, 2000.

“March 2000 was certainly not a good day for a sudden turn bullish on the Nasdaq,” Bespoke said.

top ticker

As of 6 a.m. ET, the most active stock market tickers on MarketWatch are:

random read

Predictable problems. MLB see-through pants.

That's a dog's (not very long) lifetime.

I love the smell of productivity in the morning.

Need to Know starts early and updates until the opening bell, but Sign up here Delivered once to your mailbox. The email version will be sent around 7:30 a.m. ET.