Despite ongoing apprehensions surrounding an AI bubble burst, the Magnificent Seven tech stocks appear undervalued when compared to the wider stock market, according to JPMorgan.
What Happened: JPMorgan analysts have indicated that the mega-cap stocks, despite their strong performance, retain reasonable valuations relative to the average prices of the S&P 500 over the last five years, reported Business Insider.
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 — make up almost 30% of the S&P 500 market cap.
“The group is currently trading less stretched than a few years ago, given earnings delivery,” the analysts stated. They further noted that these stocks could outperform traditional cyclicals in the face of general earnings disappointment.
Despite the ‘Magnificent Seven’ witnessing a 27% increase in net income growth in 2023, JPMorgan conceded that the narrow market leadership is “ultimately unhealthy.”
Why It Matters: This analysis comes amid a speculated end of the ‘Magnificent Seven’ era which saw a divergence in the fortunes of the seven stocks. The group’s dominance over the stock market has been waning, contributing to just 45% of the S&P 500's gains, a significant drop from 88% in April.
Meanwhile, Goldman Sachs has raised concerns over the U.S. stock market’s heavy concentration and the dominant sway of its largest tech stocks, urging investors to broaden their geographical diversification.
Despite the concerns, experts like Ryan Detrick, the chief market strategist at Carson Group, have argued that the ‘Magnificent Seven’ stocks are not in a bubble.
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