2023 has been a spectacular year for the tech industry, with mega-cap tech stocks soaring to new heights. Dominated by the rise of artificial intelligence (AI), the tech giants, affectionately dubbed the “Magnificent Seven” – Apple, Microsoft, Google owner Alphabet, Amazon, Nvidia, Facebook parent Meta Platforms, and Tesla – have collectively outshined the broader market.
Nvidia’s staggering 240% surge this year, propelling it to a dazzling $1 trillion valuation, is just one example of the extraordinary growth witnessed within this group. Not to be outdone, Meta and Tesla have also posted impressive triple-digit returns, leaving the rest of the S&P 500, or the “S&P 493,” trailing in their wake.
According to Goldman Sachs data, as of late November, the Magnificent Seven achieved a remarkable 71% increase year-to-date, starkly contrasting with the mere 6% uptick of the other companies in the S&P 500.
Looking into 2024, the consensus among Wall Street analysts, including Goldman Sachs’ chief US equity strategist David Kostin, is a continued bullish outlook for these tech behemoths. The reason? Their unique positioning is to capitalize on the ongoing AI revolution.
Nvidia’s dominance in GPUs, Microsoft’s partnership with OpenAI, Google’s recent AI model release, and the potential increase in AI investment by Apple and Amazon all point to a significant earnings boost for these companies, powered by AI advancements.
Kathleen Brooks, founder of Minerva Analysis, emphasizes the potential of AI in 2024, noting that we’re “only scratching the surface” of this technological marvel. She highlights the immense cash reserves and resources that these tech giants hold, making them formidable players in the AI space.
The Federal Reserve’s signaling of potential interest rate cuts adds another layer of optimism. Fed chair Jerome Powell’s recent hints have stirred expectations of an “everything rally,” a scenario that would invariably benefit the top US companies by market capitalization.
David Kostin’s revised S&P 500 forecast to 5,100 points, echoed by other market analysts, is predicated on the assumption that the Magnificent Seven will continue their upward trajectory.
Brooks aptly sums up the sentiment: “Ultimately, if you’re selecting stocks at all, you want to be selecting these ones.” The market dominance of these tech giants is so profound that betting against them seems unwise. After all, as Brooks puts it, “What market? They are the market.” Betting against the Magnificent Seven in 2024, given their current trajectory and market position, doesn’t just seem like a bad idea – it appears to be against the grain of the unfolding tech narrative.