Artificial intelligence has brought hefty profits to many technology companies and increased the value of their shares (icon image). (Photo by Michael Nagle/Xinhua via Getty Images)
The AI boom has given rise to a new group of mega-cap tech stocks known as the “Magnificent 7.”
The combined market value of the group has increased by 60 percent this year to eleven trillion dollars (about ten trillion euros) – almost three times the German GDP.
However, skeptics have warned that the seven stocks’ upswing could soon peter out amid mounting economic headwinds.
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This year, the S&P 500 is dominated by a new group of mega-cap tech stocks known as the “Magnificent 7.” These are the seven largest publicly traded US companies – tech giants Apple, Microsoft, Google parent Alphabet, Amazon and Meta Platforms – as well as two new entrants Nvidia and Tesla.
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Thanks to a rally in tech stocks fueled by artificial intelligence (AI) hype, the group’s market cap is up 60 percent this year, or $4.1 trillion, to 11 trillion dollars (about ten trillion euros). For comparison: That is almost three times as much as the German economy, which according to the World Bank was valued at just over four trillion dollars (about 3.87 trillion euros) at the end of 2022.
Apple, Microsoft
Just last week, Apple’s valuation surpassed $3 trillion, becoming the first company to reach that milestone. The gains reflect the continued success of the company’s high-tech products, such as the iPhone and iPad, around which an ecosystem of services and other offerings has been built.
According to Morgan Stanley, Microsoft will likely be the next mega-cap tech stock to hit a $3 trillion valuation. The bank described the stock as a “top pick” and gave it upside potential of 22 percent compared to the current price level thanks to its “pole position” in the race for generative AI. This could help her monetize the trend quickly.
Nvidia, Tesla
Meanwhile, chipmaker Nvidia’s value has risen nearly 200 percent this year, catapulting the company into the trillion-dollar market cap club for the first time in history. It also took the fortune of Jensen Huang, the company’s CEO, to $39.2 billion, making him the 34th richest person in the world according to the Bloomberg Billionaires Index.
Tesla’s entry into the elite group is also justified. The Elon Musk-led automaker’s stock has soared 126 percent this year, thanks to price cuts fueling demand for electric cars, charging technology deals with rivals Ford and GM, and investor enthusiasm for AI.
“One way to get exposure to AI is through the ‘Magnificent Seven’ – Amazon, Alphabet (Google), Apple, Meta, Microsoft, Nvidia and Tesla,” Saxo Bank said in its quarterly outlook. “These companies all play a key role in the development and application of AI, but one should not forget that the main driver of their profits is still not AI,” she added.
The seven stocks have accounted for most of the S&P 500’s gains this year and have helped push the benchmark index into bull market territory. But not everyone is convinced of this. Fundstrat’s Mark Newton recently pointed out eight warning signs investors should look out for to determine if a stock market correction is imminent.
At the same time, Mike Wilson, top stock picker at Morgan Stanley, pointed out that the AI hype doesn’t discount the high odds of the US economy sliding into recession, and warned that weak economic growth will ultimately drive stocks to rally 2023 could nullify.
Disclaimer: Stocks and other investments are always associated with risk. A total loss of the invested capital cannot be ruled out either. The published articles, data and forecasts are not an invitation to buy or sell securities or rights. They also do not replace professional advice.
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