Tech Rally Or Dotcom Déjà Vu? The Magnificent Seven's Secret Sauce Unveiled

The U.S. tech rally has been nothing short of spectacular over the past year. According to Peter Callahan, a sector specialist at Goldman Sachs Global Banking & Markets, it’s not just a fleeting phenomenon but is rooted in sustainable and enduring fundamentals.

The S&P 500 Index is up over 25% in the past year.

This is evident by the price appreciation seen in ETFs tracking it — the SPDR S&P 500 ETF SPY, the Vanguard S&P 500 ETF VOO and the iShares Core S&P 500 ETF IVV.

At the forefront of this surge are the Magnificent Seven tech stocks. These have played a pivotal role in driving the S&P 500’s recent rally.

The chart above shows how the Magnificent Seven tech stocks have performed over the past year. Nvidia Corp NVDA has led the surge, followed by Meta Platforms Inc META, and Amazon.com Inc AMZN next. These stocks have returned 234.86%, 164.89% and 86.70%, respectively, according to Benzinga Pro data.

Microsoft Corp MSFT, Alphabet Inc GOOG GOOGL, Apple Inc AAPL and Tesla Inc TSLA come next in the elite group. These have clocked 61.84%, 48.09%, 19.17% and 1.85% on the charts, respectively, over the past year as of Feb. 26, 2024.

Also Read: Analyst Who Coined ‘Magnificent 7’ Label Declares End Of An Era: ‘I Don’t See These Seven Names Rising Together’

What’s Behind The Tech Rally? Callahan Weighs In

Since the beginning of 2023, these seven stocks have outshined the rest, marking an impressive 90% surge.

On the other hand, the other 493 stocks in the S&P 500 index have seen a comparatively modest 18% increase. Despite concerns about potential overvaluation and echoes of the dotcom bubble, Callahan sees a different narrative. He attributes the success of the Magnificent Seven to their strategic focus on generative AI.

Beyond The Hype

While the tech sector has witnessed a surge in investor sentiment due to the rise of AI, it’s not just hype, says Callahan. Real revenue and earnings growth accompany the excitement, he noted. In the fourth quarter, the Magnificent Seven reported a substantial 15% year-over-year increase in revenues.

Looking ahead, an annual sales growth of 12% is anticipated through 2026, reflecting a robust and sustained trajectory. Callahan asserts, “This rally has been built on a strong foundation,” expressing confidence in the continued success of these tech giants fueled by the transformative power of generative AI.

As investors navigate the tech landscape, the Magnificent Seven’s focus on sustainable growth and cutting-edge technologies like generative AI positions them as key players in the ongoing tech revolution.

Beyond the concerns of a potential bubble, the fundamentals driving this tech rally suggest a resilient and promising journey for the Magnificent Seven and, by extension, the broader tech landscape.

Read Next: Jim Cramer Evaluates Nvidia, Amazon And Other Magnificent 7 Earnings: ‘The Seven Truly Did Acquit Themselves Well’

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