It is a bullish signal that the market is rallying without the likes of Apple and Tesla, some investors say
4 min
The Magnificent Seven trade is beginning to fizzle—and yet, the stock market is still heading higher.
The S&P 500 climbed 10% in the first quarter, its best start to a year since 2019 , even though two of its biggest constituents suffered double-digit declines. Apple shares fell 11% in the first three months of the year, while Tesla dropped almost 30%. Alphabet shares sputtered for much of the period before making a run in the past three weeks and ending up 8%.
The other four big tech stocks in the group known as the Magnificent Seven— Nvidia , Meta Platforms , Microsoft , Amazon.com —continued their meteoric run and outpaced the broader market. Some market strategists have dubbed them the new Fab Four.
Some investors say it is a bullish signal that the market is still rallying without the likes of Apple and Tesla because it means other groups are taking part . All of the S&P 500’s sectors, except real estate, logged gains in the first quarter. Small caps, industrial and financial-services stocks are among those that jumped, fueling bets that the broader market might have more room to run.
Much of the enthusiasm is tied to hopes that the economy has escaped a deep recession and that the Federal Reserve will soon pivot to cutting interest rates , even if not at the pace some investors had previously hoped. A frenzy over the future of artificial intelligence has added to the zeal.
“If you’d have told me eight weeks ago that Apple and Tesla would be down as much as they are, oh and by the way, you’re punting when you’re going to do the rate cuts and you’re getting less rate cuts, I would have assumed the market would be down,” said Ryan Detrick , chief market strategist at Carson Group.
To be sure, some investors worry the divergence in the big tech stocks is a sign of exhaustion in the rally and question whether future gains will be harder to achieve from here. The S&P 500’s market value has swelled more than $9 trillion since late October, and the index has set 22 record closes in 2024.
In the coming days, investors trying to gauge the trajectory of the market and economy will parse the release of U.S. manufacturing data Monday and the monthly jobs report Friday.
Nvidia continues to be a stock-market star. The graphics-chip maker has indicated demand for the computing power that underlies AI remains astronomical . Its shares have jumped more than 80% to start the year, after more than tripling in 2023.
By some metrics, Nvidia has displaced Tesla as the most popular stock among individual investors . It is currently the biggest average holding in individual investors’ portfolios, at about 9%, VandaTrack data show.
Meta shares, meanwhile, have soared partly thanks to Meta’s investments in artificial intelligence that have made targeted ads smarter. The social-media company recently said it would pay its first shareholder dividend. Microsoft stole the crown of biggest U.S. company from Apple earlier this year, with a valuation that topped $3 trillion, and Amazon has sharply improved its profitability.
Despite their recent gains, some of the stocks look less pricey than they did last year. Nvidia is trading at 35 times its projected earnings over the next 12 months, below its peak of 62 in May of last year. Amazon’s multiple is 40, down from 2023’s high of 62. The S&P 500 is trading at 21 times future earnings, slightly up from last year’s highs of 19.
The Fab Four are responsible for nearly half of the S&P 500’s first-quarter advance, according to Howard Silverblatt , senior index analyst at S&P Dow Jones Indices.
Joseph Ferrara , investment strategist at Gateway Investment Advisers, said he expects investors to rotate out of big tech stocks and funnel into other sectors as the year progresses. That is largely because the earnings of the other 493 companies in the index are expected to outperform those of the Magnificent Seven by the fourth quarter.
“The fact that the market is still holding these levels and trading up without that full force of the Magnificent Seven is actually a really positive thing,” he said.
Jonathan Golub , a strategist at UBS, said one reason Magnificent Seven’s earnings dominance could end is because it will be hard to top the explosive growth they posted at the end of last year. Those results looked like blockbuster beats when compared with 2022’s weaker numbers, he said in a recent research note.
Last year, any hint of weakness in the Magnificent Seven would have sent the broader market tumbling. In fact, for much of the year, those seven stocks were responsible for all of the S&P 500’s advance.
This year is a different story. Tesla is struggling on numerous fronts . The electric-vehicle maker is facing pressure from Chinese competitors, which have rapidly expanded their presence around the globe in recent years. It has also warned of notably slower growth in 2024, and its profit margins have taken a hit.
Apple’s woes have been mounting, too . The Justice Department recently sued the company, accusing it of monopolistic behaviour. European authorities are cracking down on its app store. Plus, it is facing another weak iPhone demand cycle, and investors are worried that Apple is behind in the current wave of excitement around AI.
Bespoke Investment Group data show Apple shares underperformed the S&P 500 over the 200 days through Tuesday by the widest margin since October 2013.
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Nvidia’s earnings will test Wall Street’s confidence in the AI boom.
3 min
Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.
When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.
The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.
But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.
Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.
After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.
“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”
The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.
Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.
In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.
Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.
“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”
Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.
“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.
The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.
The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.
In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.
Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.
