Comment: Magnificent Seven stocks ‘look cheap’

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The Magnificent Seven tech stocks look cheap compared to other stocks within the S&P 500, affirms Nigel Green

 
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The analysis from the CEO of deVere Group comes as the Wall Street index rose about 1.2% to close at a new record high on Tuesday.

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It follows the tech-dominated Nasdaq Composite, Japan’s Nikkei 225, Germany’s Dax and France’s Cac 40, among other indices, all having hit their highest-ever levels in recent weeks.

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The deVere CEO says: “These tech stocks look cheap relative to other stocks in the market due to a combination of factors including their exceptional financial performance, transformative tech innovations, competitive advantages, and attractive valuation metrics.”

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He continues: “In 2023, the Magnificent Seven collectively achieved a staggering net income growth of 27%, a stark contrast to the net income loss of 4% experienced by the rest of the S&P 500.

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“This impressive feat underscores their ability to thrive and expand their market dominance. Such consistent and robust financial performance is testament to their enduring relevance and innovative capacity.”

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A key factor contributing to the undervaluation of the Magnificent Seven lies in their early investments in artificial intelligence (AI).

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Companies like Microsoft and Meta were visionary in recognising the potential of AI and made significant investments accordingly.

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“These investments are bearing fruit, fuelling further growth and cementing their positions as leaders in tech,” says Nigel Green.

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“Meta, for instance, has seen its stock surge by a remarkable 44% this year, propelled by its AI-driven initiatives and innovative strategies.

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Microsoft, on the other hand, has not only surpassed Apple as the most valuable company in the world but has also witnessed an 8% increase in its stock value, proving the enduring relevance of its AI-driven ecosystem.”

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He goes on to say: “The pivotal role played by chipmaker Nvidia in powering the AI revolution cannot be overstated.

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“With its cutting-edge tech and innovative solutions, Nvidia is now driving technological advancements across various sectors.

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“This year alone, the stock of Nvidia has soared by an astounding 87%, a reflection of its unparalleled growth trajectory and unwavering investor confidence.”

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Despite the stellar performance of the Magnificent Seven, certain outliers like Tesla and Apple have witnessed declines in their stock value in 2024, down 28% and 12%, respectively.

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However, it’s crucial to recognise these setbacks within the broader context of their long-term growth trajectory and market dominance.

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“Tesla’s pioneering electric vehicles and renewable energy, coupled with Apple’s innovative product line-up and strong brand loyalty, position them strongly.

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“The temporary fluctuations in their stock value should not overshadow their intrinsic value and potential for future growth.”

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The deVere CEO concludes: “The Magnificent Seven tech stocks in the S&P 500 are more than just investments; they’re gateways to the future.

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“With their stellar financial performance, early investments in AI, and unwavering commitment to innovation, these stocks are likely to be set for a continued bullish run.”