In 2023, U.S. technology stocks unexpectedly recovered from the "earnings crisis" and "wave of layoffs" in 2022, and the AI model represented by GPT drove the wave of U.S. stocks soaring and triggered the stock prices of technology companies such as Nvidia to record highs.
As of the last second week of 2023**, seven technology companies, including Apple, Google, Microsoft, Amazon, Meta, Nvidia, and Tesla, have a combined market capitalization of more than $12 trillion, an increase of one-third from the market value on June 30 this year. At the same time, the total weight of the seven tech giants in the S&P 500 reached a record 30%, which is almost double what it was five years ago.
The market is desperate to see if U.S. tech stocks can continue to break records next year. Albert Edwards, global strategist at Société Générale, pointed out that the instability of the U.S. technology industry could become the biggest "black swan" for the economy next year.
In 2023, Nvidia hit a milestone in market capitalization, and the company exceeded $1 trillion in market capitalization for the first time on May 30 this year, becoming the first chip company in the history of the U.S. stock market to reach a market capitalization of $1 trillion, making history.
Since the beginning of this year, Nvidia's stock price has risen by more than 230%, making it the best stock price performance among the "Magnificent Seven" in the United States. What drives the company's stock price is the chip computing power required behind the AI model. The company's sales are on track to exceed $30 billion for the first time this year.
The second best shareholder in Nvidia is Facebook's parent company, Meta, which has accumulated more than 190% of its share price this year. Meta's share price has also been boosted by continued investment in artificial intelligence, with the company's LLAMA AI model directly benchmarked against OpenAI's GPT. Meta has also managed to rediscover its way forward from the previous "wave of layoffs".
Tesla, the electric car company owned by tech tycoon Elon Musk, has risen more than 100% this year. The market's investment in Tesla has also benefited in part from the company's progress in AI fields such as humanoid robots. At Tesla's shareholder meeting in May, Musk said that Tesla's humanoid robot "Optimus" (Optimus) is being developed will be able to run on Tesla's advanced driver assistance system software and computers in the future. He believes that Tesla's "majority of its long-term value" will eventually come from Optimus.
Apple's share price also hit a milestone this year, surpassing $3 trillion for the first time on June 30, the first company in the U.S. to exceed $3 trillion in market capitalization, and hitting an all-time high on July 31. The company's stock price has risen nearly 50% this year. In an uncertain economic environment, Apple** investment is still seen as a "fortress" for investors.
As cloud service providers that provide data center support for AI, the stock prices of Microsoft, Amazon and Google have also benefited from the growth of data center businesses driven by AI demand this year. Amazon's stock price has risen more than 80% this year, while Google and Microsoft have also risen by about 60%.
As 2024 begins, investors want to know whether the U.S. tech industry can still be the engine of economic growth next year. Société Générale is pessimistic about this.
In his last Global Strategy Weekly report published in 2023, Societe Generale global strategist Albert Edwards warned of potential uncertainties that could shake global financial markets in 2024.
In the report, Edwards focuses on the instability of the U.S. technology sector and its potential impact on the overall market. He warned that the biggest surprise in 2024 could be the bursting of the U.S. tech bubble, which could drag the entire U.S. market into recession.
Looking at the price-to-earnings ratio metric, the valuations of these tech giants are still very high. Data compiled by agencies shows that the Nasdaq is trading at an expected price-to-earnings ratio of about 25 times over the next 12 months. While this is down from the all-time peak of 30x P/E that was touched in 2020, it is well above the average P/E of 19x over the past 20 years.
However, Morgan Stanley and Societe Generale have different views. The brokerage said that U.S. stocks are likely to continue next year** as investors continue to add their bets on technology companies. Morgan Stanley notes that the S&P 500 is now almost back to the levels of early 2022 and that the "Big Seven Tech" is likely to continue in 2024** as these companies are performing very well in earnings and are expected to buy back large amounts next year**. However, the agency's analysis believes that U.S. stocks may appear before the end of next year.
Taking Apple as an example, an investor who holds Apple** told the first financial reporter: "Apple has a lot of cash flow, the iPhone is currently the world's most profitable mobile phone product, and Apple also has a strong shareholder return plan, which makes the company's stock price strong." I remain bullish on the rally in US tech stocks next year. ”
Some market participants also pointed out that what drives the US stock market this year is the investment logic of "fear of missing opportunities" (FOMO) in the wave of AI large models, and with the tightening of regulations on AI large models, some investors may find it difficult to realize large models.