Benzinga - by Piero Cingari, Benzinga Staff Writer.
The collective market capitalization of the seven leading U.S. technology companies, often referred to as the Magnificent Seven, has edged closer Monday to the staggering $13-trillion mark.
The elite cluster includes Apple Inc. (NASDAQ:AAPL), Microsoft Corp. (NYSE:MSFT), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon Inc. (NASDAQ:AMZN), Meta Platforms Inc. (NASDAQ:META), NVIDIA Corp. (NASDAQ:NVDA) and Tesla, Inc. (NASDAQ:TSLA). The group saw its combined worth surpass the total economic output of global cities such as New York, Tokyo, London, Los Angeles, London, Paris, Seoul, Chicago, San Francisco, Osaka and Shanghai, as highlighted by Michael Hartnett, Bank of America’s chief market strategist, in a recent note.
The stocks are now testing the “law of physics,” Bloomberg columnists John Authers and Isabelle Lee wrote on Monday. Ed Yardeni, a popular Wall Street industry veteran, said “the Mag-7 once again are sucking all the air out of the universe,” in a recent note addressing the spectacular jump of Meta Platforms.
Last Friday, the social media giant owned by Mark Zuckerberg made a historic $204-billion market value jump in a single day, the largest for any U.S. company ever.
| Microsoft Corporation | $3,013.04 | -$31.03 | $62.02 | 33.2x | 58.35% |
| Apple Inc. | $2,908.02 | -$51.72 | $119.58 | 28.2x | 22.57% |
| Alphabet Inc. | $1,796.35 | -$112.76 | $86.31 | 21.4x | 37.92% |
| Amazon.com, Inc. | $1,767.52 | +$97.55 | $169.96 | 40.5x | 64.58% |
| NVIDIA Corporation | $1,698.69 | +$171.54 | $18.12 | 34.9x | 226.08% |
| Meta Platforms, Inc. | $1,186.75 | +$190.82 | $40.11 | 23.6x | 149.56% |
| Tesla, Inc. | $574.65 | -$31.59 | $25.17 | 56.4x | -5.02% |
| Total/Aggregate | $12,945.01 | +$232.81 | $521.26 | – | – |
| Average | – | – | – | 34x | 79% |
Mayday, Mayday, We Have A Concentration Problem The impact of these tech giants extends well into the concentration of equity indices and investment portfolios.
A recent analysis by JPMorgan Chase & Co.'s team, led by Khuram Chaudhry, revealed the top 10 stocks of the MSCI USA Index, which includes the Magnificent Seven, constituted 29.3% of the index as of December. This concentration is alarmingly close to the 33.2% peak seen during the dot-com bubble’s peak in June 2000.
Furthermore, a Goldman Sachs report from late 2023 highlighted that the Magnificent Seven account for nearly 13% of holdings across 735 hedge funds, overseeing a colossal $2.4 trillion in gross equity positions.
Market Dominance And The Path Ahead Goldman Sachs equity analysts Ben Snider and David J. Kostin said “the forward path of the Magnificent Seven is one of the most common client questions” they receive.
They note that if Nvidia meets consensus estimates in its upcoming earnings report, the seven companies will have generated $523 billion in sales in the fourth quarter alone, marking a year-over-year increase of 14%. This growth starkly contrasts with the mere 2% revenue increase for the rest of the S&P 500’s companies.
The tech giants also enjoyed margin expansions of approximately 750 basis points to 23%, versus a 110-basis-point decline to 9% for the other 493 stocks.
Year-to-date, the group has outperformed the broader S&P 500, delivering a 7.9% return compared to 2.6% for the rest. This gap widened significantly in 2023, with a staggering 62-percentage-point difference in performance (76% vs. 14%).
The Goldman analysts anticipate that, assuming both price-to-earnings multiples and consensus estimates for 2025 remain unchanged, the Magnificent Seven could see a further 16% surge by year-end.
They caution that sales growth, alongside factors such as hedge fund positioning, antitrust litigation and macroeconomic shifts, will be crucial in determining the trajectory of these stocks.
Learning From The Past
The early 2000s tech bubble serves as a stark reminder of the risks of overestimating market potential.In March 2000, companies like Microsoft, Cisco Systems Inc. (NYSE:CSCO), General Electric Inc. (NYSE:GE), Intel Corp. (NASDAQ:INTC) and Exxon Mobil Corp. (NYSE:XOM) were expected to see sales grow at a 16% compound annual growth rate over the following two years. Instead, their growth capped at 8%, leading to a 21-percentage-point underperformance against the S&P 500 over the subsequent 24 months.
While the Magnificent Seven’s future growth prospects appear robust, driven by significant sales increases and market dominance, the cautionary tales of the past remind investors of the importance of approaching consensus estimates with a critical eye.
Read now: This New ETF Allows Investment In Apple, Microsoft And Other ‘Magnificent 7’ Stocks
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