THE ranks of Wall Street strategists playing down concerns around a bubble in US technology megacap stocks are growing.
The team at JPMorgan Chase was the latest to flag that valuations of the seven tech giants that have powered the record-breaking rally on Wall Street are currently lower relative to the rest of the S&P 500 than the average of the past five years.
“There is a concern over the very strong outperformance of the Magnificent Seven, but we note that the group is currently trading less stretched than a few years ago, given earnings delivery,” strategist Mislav Matejka wrote in a note. “This is not to say that the group is immune to profit disappointments ahead, but in the case of general earnings disappointment, these stocks could still hold out better than traditional cyclicals” reliant on strength in the economy, he added.
Strategists at Goldman Sachs Group also said last week that while the US equity market’s concentration is the highest in decades, the top stocks trade at much-lower valuations than the largest names did at the peak of the tech bubble.
The Magnificent Seven stocks – comprising Apple, Google parent Alphabet, Amazon.com, Facebook owner Meta Platforms, Microsoft, Nvidia and Tesla – had driven the biggest gains in the S&P 500 last year. The benchmark index has scaled all-time highs in 2024, but the performance of those mega-caps has diverged more recently.
While artificial intelligence darling Nvidia has soared to a record high, Apple shares entered a technical correction this month amid concerns about the company’s slumping iPhone sales and regulatory pressures.
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A note from Bank of America last week showed that technology funds suffered their biggest outflows on record. Still, strategist Michael Hartnett reiterated that technology stocks could have more room to rally. BLOOMBERG
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