As inflation remains stubborn and recession fears still loom, experts say “Magnificent Seven” stocks are on the rise – and may be the safest place to invest your money.
Excitement around artificial intelligence (AI) has driven up the values of major tech companies this year, with Apple, Meta and Nvidia leading the way.
Fellow tech titans Microsoft, Amazon, Tesla and Alphabet Inc. have also made significant gains – and commentators say they are driving a ‘bull market’.
In total, these seven stocks accounted for about 90 percent of stock market gains on Wall Street’s S&P 500 this year — which has been on steady momentum.
Christine Short, an analyst at the Wall Street Horizon research firm, said Axios: ‘The overwhelming evidence suggested that this year’s gains were due to the newly minted ‘Magnificent Seven’.
Experts say a ‘magnificent seven’ stocks have emerged as tech giants see massive gains
As of Friday afternoon, shares of Apple were trading 42 percent higher than a year ago, while Tesla, Microsoft and Amazon were up 22 percent, 41 percent and 22 percent, respectively.
Meanwhile, Meta rose 77 percent and Alphabet Inc. by 17 percent.
But it’s software company Nvidia that Morgan Stanley called its “top pick” stock, as its value is up 179 percent in 12 months.
Nvidia — forecast to earn $11 billion this quarter — is at the forefront of AI development — which analysts say has helped boost its value.
A note from Morgan Stanley, seen by Insider, read: “Demand for AI training has continued to pick up since NVIDIA reported, with our industry contracts reporting new orders on a daily basis from customers not previously considered large customers.”
It added that investors were moving away from traditional companies and focusing on AI infrastructure.
“While we are positive since upgrading the [Nvidia] stocks earlier in the year, we weren’t nearly as optimistic as we should have been,” analysts said.
Tech stocks have long been popular with investors — so much so that a certain subset has earned the nickname “FANG” stocks.
The abbreviation stands for: Facebook, Amazon, Netflic, Google.
Apple was later added to the list, rebranding them as “FAANG” stocks. Such companies exploded in popularity in the 2010s.
But their investments in AI have further increased their appeal.
CNBC money guru Jim Cramer recently said that Microsoft’s profits were largely due to its $10 billion stake on the AI language processing tool chatGBT.
All tech companies have also benefited from the Federal Reserve’s decision to pause rate hikes has successfully calmed investor nerves across the board.
However, not everyone is convinced of the appeal of the ‘Magnificent Seven’ – as some experts are urging investors to be cautious.
Nvidia – predicted to make $11 billion this quarter – is at the forefront of AI development – which analysts say has helped boost its value
Microsoft’s gains are believed to be due to $10 billion dollar stake on AI language processing tool chatGBT
Stock market commentator Nigel Green said in a statement: “The noise is getting louder and the frenzy surrounding these Magnificent Seven stocks is mounting.
Still, this level of hype is dangerous because it can lead investors to believe that these stocks are a panacea for building wealth over the long term. And this is not the case.’
He added that investors should make sure they keep their portfolios diverse – and not pin all their money on big tech.
Diversification is the best way for an investor to achieve long-term success. This strategy reduces risk, mitigates volatility, takes advantage of changing market conditions, maximizes long-term returns and protects against sudden external events,” he said.
It comes as experts speculate that the US is entering a “bull market” – which is shorthand for a sustained period of rising stock prices.
Bull markets typically last two to five years — and yield average S&P 500 gains of nearly 178 percent.
The longest bull market on record lasted 11 years after the Great Recession.
The current market has been fueled in part because the economy has so far avoided a sharp downturn despite the Fed’s rate hikes.
Although growth has slowed, the US job market remains incredibly resilient. Inflation, while still too high, has fallen significantly from last summer’s peak, without higher interest rates leading to a sharp rise in unemployment.