The huge outperformance of the so-called magnificent seven – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta – has been, as Goldman Sachs notes, a “defining feature” of 2023. How concerned, then, should investors be by their valuations?

Apollo Global Management’s Torsten Slok cautions that anyone buying the S&P 500 is buying seven stocks already up 80 per cent this year and which have an average trailing price-earnings ratio above 50. The magnificent seven are “as overvalued as the Nifty Fifty and tech in 2000″, he says. This suggests a bubble is about to burst, but it’s not that simple. Yes, tech stocks crashed in 2000, but the Nifty Fifty – popular growth stocks in the early 1970s like Coca-Cola, McDonald’s, and Polaroid – is a different matter. Contrary to popular belief, anyone who bought the Nifty Fifty at 1972′s peak would have done fine, bagging annualised returns of 12.5 per cent over the next 26 years.

The Nifty Fifty was not a homogeneous group. Some were outrageously expensive, others deserved their elevated valuations. The former tanked; the latter prospered.

Overall, the Nifty Fifty’s reputation as a cautionary tale is misplaced. Similarly, seeing the magnificent seven as uniformly overvalued is simplistic. Slok says the group trades on an average PE ratio of 53, but Meta trades on just 22 times earnings; Google, 25; Apple, 31; and Microsoft, 36. In contrast, Amazon trades on 68 times trailing estimates; Tesla, 75; and Nvidia, 115. The magnificent seven is a convenient term, but the seven companies are not a monolith – far from it.