The magnificent seven stocks are growing apart

There continues to be anguished commentary about the growing dominance of the magnificent seven stocks – Microsoft, Apple, Alphabet, Amazon, Nvidia, Meta and Tesla. However, some may not have noticed that the seven stocks are increasingly growing apart.

Yes, the seven now account for nearly 30 per cent of the S&P 500′s market capitalisation – “magnificently concentrated”, as GMO’s Ben Inker puts it in the firm’s latest quarterly letter. Market leadership is “increasingly unhealthy”, says JPMorgan.

2023′s outperformance has continued into 2024, with Goldman Sachs noting the group has gained 8 per cent, compared to 3 per cent for the rest of the index.

Still, the seven don’t move in lockstep. Tesla’s stock has cratered. In contrast, Nvidia has soared 45 per cent in 2024. Facebook parent Meta gained 20 per cent after blowing past earnings expectations and announcing its first dividend. Stellar earnings from Microsoft and Amazon have helped them bag double-digit percentage gains this year, but Alphabet is performing more in line with the S&P 500, slipping after recent earnings revealed slower-than-expected ad sales growth.

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Meanwhile, Apple has lost its crown as the world’s most valuable company to Microsoft, due to concerns over a China slowdown and fears it is falling behind in the AI race.

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The dispersion in returns is reflected in the dispersion in growth estimates. Goldman notes Nvidia is expected to grow sales during the next three years at a “blistering” 31 per cent annually, compared to just 6 per cent for Apple. Similarly, earnings revisions have varied hugely over the last six months, with Nvidia’s increasing 57 per cent while Tesla’s have fallen 14 per cent.

Far from being a homogeneous group, the seven companies run very different businesses, ranging from AI to advertising, from ecommerce to cars – differences increasingly reflected in their market performance.

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