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Magnificent 7 Dominance and Challenges

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
  • “From Magnificent 7 to Super Five”
  • “Inflation’s Threat to the Tech Rally”

Last year, a select group of firms, often called the “Magnificent Seven,” dominated the overall return of the U.S. stock market. This elite circle, comprising Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, contributed 62% of the S&P 500’s returns, dividends included. [1]

Transitioning into the current year, the trend has slightly shifted. Only four companies—Nvidia, Meta, Microsoft, and Amazon—were responsible for over half of the S&P 500’s total returns, making up 55% of the index’s performance.

Source: Tradingview

Nvidia has led the tech wave with a nearly 80%[2] surge this year.

Tesla and Apple have experienced a decline in their stock market performance, losing their luster over the first three and a half months of the year.

They’ve been unable to maintain momentum as their growth stories did not deliver and hence failed to justify their stock prices.

Apple’s shares have faced challenges, primarily due to reduced demand for its products in China and the company’s slow advancements in artificial intelligence (AI) space.

On the other hand, Tesla’s value has decreased by more than 30% year-to-date as enthusiasm for electric vehicles (EVs) wanes.

Does the rally have legs?

The surge in the tech sector, particularly among the companies dubbed the “Magnificent Seven,” is largely attributed to the remarkable earnings fueled by the rapid advancement in artificial intelligence (AI) technology.

In the last quarter of 2023, the earnings growth for U.S. stocks significantly surpassed what analysts had predicted, more than doubling their expectations.

The swift ascent of AI-related stocks is matched by rising earnings forecasts and, more importantly, actual earnings.

Companies at the forefront of AI, such as Nvidia and Microsoft, are effectively meeting the high expectations set for them.

Source: Koyfin

Nvidia’s earnings per share expansion has surged to triple-digit percentages[3] thanks to its exclusive dedication to artificial intelligence (AI).

On the opposite spectrum, Tesla is notably divergent, marking the least favorable performance.

It is distinguished as the sole company anticipated to witness a decline in earnings in the next twelve months, yet it significantly leads in valuation compared to its counterparts.

Inflation could threaten the rally

Persistently high inflation might postpone cuts in interest rates that would otherwise favor growth, posing a risk to the strong earnings driving the market’s relentless surge.

Historically, market rallies concentrated among a few stocks often preceded significant downturns, as these leading companies fail to sustain earnings growth that validates their high valuations and the dense concentration of investor interest.

For instance, a scenario where 10 companies contributed to over two-thirds of the S&P 500’s increase marked an extreme narrowness in market breadth, mirroring situations observed in 1999, 2007, 2020 and 2021[4].

In three out of these four instances, the market experienced a decline exceeding 10% in the subsequent year.

 

Investors can long any of the Magnificent 7 constituents using our 3x Alphabet, 3x Facebook,  3x Apple, 3x Microsoft,  3x Amazon,  3x NVIDIA, 3x Tesla.

Alternatively, traders can short any of the Magnificent 7 constituents using our -3x Alphabet, -3x Facebook, -3x Apple,  -3x Microsoft, -3x Amazon, -3x NVIDIA,  -3x Tesla.

 


Footnotes:
  1. S&P Dow Jones Indexes
  2. Tradingview
  3. Koyfin
  4. Bloomberg
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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