The "Big Seven" will first go through a round of adjustment, and then will enter a long-term stage.
The surge in the hottest tech "Magnificent Seven" in the U.S. may be a "mini-bubble" that is about to burst. However, when this bubble bursts, it's time for investors to **these**.
Over the past few months, the "Big Seven" – NVDA, Microsoft (MSFT), Meta Platforms (Meta), Alphabet (GOOGL), Tesla (TSLA), Apple (AAPL), and Amazon (AMZN) – have seen their share prices soar, with several more than doubling from their respective bear market bottoms and Nvidia shares more than sixfold.
The new opportunities brought about by AI have been the main driving force behind the "Big Seven" as AI technology shifts from Google's large language model Gemini to new advanced cloud computing capabilities, with investors believing that these tech giants will have more market opportunities, and analysts have raised their earnings forecasts for these seven companies, and stock prices have followed.
Now the "Big Seven" is too hot, and there is more and more evidence that these seven ** are in a bubble that is beginning to burst.
The "Big Seven" is on par with the gains we've seen in other bubble periods, and that's the first piece of evidence. As of 2021, Faang** (the five tech stocks that had previously risen sharply) surged 229% from its lows and then 49%, according to Bank of America. Before FAANG, as of 2000, the popular stocks of the dot-com bubble period soared by 192% and then by 73%.
The next question is when these bubbles will generally burst. Nine of the 14 bubbles studied by Bank of America burst less than two years after the stock price**. The "Big Seven" have been going on for a little over a year now, so their movements may soon become faltering.
The money poured into these seven ** has been so much lately that there is no more money to enter. So far this year alone, more than $10 billion has seen net inflows into tech stocks**, and full-year inflows are expected to reach $84 billion, a record figure that is about double last year's net inflows of $44 billion.
This may indicate that there is a shortage of new buyers for tech stocks in the not-too-distant future, as investors interested in tech stocks are already ** and they don't have to take on any additional risk. Technology stocks have retreated from recent highs, with Nvidia** about 7%. The catalyst for the pullback in tech stocks was the recent release of larger-than-expected inflation data, which led to a rise in long-term bond yields, putting pressure on tech stocks.
Bank of America has called this round of AI hype** a "baby bubble."
That's one reason you shouldn't buy these right now, but waiting until the Big Seven is a pretty solid strategy.
This brings us to the second part of this article: the long-term bull market outlook for the Big Seven and tech stocks related to the Big Seven.
In fact, the opportunities presented by AI are well deserved, and tech companies' earnings are likely to continue to grow rapidly in the coming years. According to Precedence Research, total AI spending will grow at a rate of nearly 20% per year through 2032 and exceed 2$5 trillion. This means that companies at the forefront of the innovation curve will grow at a rate close to 20% or even faster. At some point, their costs will rise at a slower pace, their margins will stabilize or rise, and these cash-rich companies will buy back**.
There is historical evidence of the potential of the growth curve. According to Trivariate Research, innovation in mobile phones, the Internet, and computers has grown at double-digit rates every year for more than 10 years.
Adam Parker, an analyst at Trivariate Research, said: "This is why many investors plan to arrive at the second phase of the Big Seven, which always happens on most technology adoption curves. ”
To sum up, the "Big Seven" will first go through a round of adjustment, and then will enter a long-term stage.
Text |Jacob Sonam Shane
Edit |Guo Liqun
Copyright Notice: Barron's original article, without permission, may not**. For the English version, see February 20, 2024**, "The NVIDIA and Magnificent 7 Stock Bubble Could Pop." how to get ready.”。
The content of this article is for informational purposes only and does not constitute investment and financial advice of any kind; The market is risky and investors should be cautious. ）
Market analysis.