Megacap Divergence Sharpens: Who Will Join the $1 Trillion Market Cap Club After Meta?
Investors are no longer treating the so-called "Magnificent Seven" as a bloc, as attention shifts from the mere potential of artificial intelligence to tangible financial outcomes.
$Meta Platforms(META.US$, $NVIDIA(NVDA.US$, $Microsoft(MSFT.US$, and $Amazon(AMZN.US$ have maintained their momentum, surpassing the broader market's performance. In contrast, $Alphabet-A(GOOGL.US$ has not kept up with the S&P 500's pace, while $Tesla(TSLA.US$ and $Apple(AAPL.US$ have notably weighed down the index. Tesla's over 20% plunge this year has put its status as one of the US's top 10 most valuable firms in jeopardy.
The Divergence of the 'Magnificent Seven' Amid Shifting Investor Focus
Meta's valuation soared by $204.5 billion on Friday, marking Wall Street's largest single-day market cap increase ever. The company rejoined the $1 trillion market cap club earlier this year.
This remarkable rise in Meta's stock price followed the announcement of its first ever dividend of 50 cents per share and the authorization of an additional $50 billion for share buybacks.
Josh Beck, an analyst at Raymond James, places Meta alongside Microsoft and Nvidia as tech titans leading the AI revolution. Nvidia has become the backbone of the AI boom, grappling with the high demand for its AI-capable hardware, while Microsoft is seeing AI benefits to its Azure cloud-computing business as well as its software portfolio.
"People are looking at the specifics," said Fawaz Chaudhry, head of equities at Fulcrum Asset Management. "I would say for Tesla at least, some of the sheen was unearned in terms of AI . . . [and] $Apple(AAPL.US$ has been less clear about how it will monetise the data it has with AI."
AI's Luster Fades as Financial Performance Takes the Spotlight
Optimism that interest rates have nearly peaked, thanks to declining inflation, has fueled a significant rally late in the year. However, investors are now moderating their expectations on the speed of rate reductions.
Lower rates traditionally justify higher valuations for riskier assets like equities. Although the Fed is anticipated to begin rate cuts later in the year, the price-to-earnings ratios are unlikely to climb significantly, as much of the rate cut benefits have already been factored in, highlighting the critical role of earnings in propelling further stock gains.
As Vishal Vivek, a strategist at Citi, points out, investors approached earnings season with bullish positions on large-cap stocks, raising the bar for outperformance. Only companies that presented investors with added value have seen their stocks appreciate.
Berkshire Hathaway and Eli Lilly Eclipse Tesla in Market Cap Rankings
A notable shift has occurred, with $Berkshire Hathaway-A(BRK.A.US$ and $Eli Lilly and Co(LLY.US$ surpassing Tesla in market capitalization. Eli Lilly's impressive climb — with its stock nearly doubling due to robust demand for new weight-loss medications — demonstrates that AI isn't the sole driver of investor excitement.
Michael Grant from Calamos Investments predicts more differentiation among mega-cap companies, a trend that's already becoming evident. Nonetheless, he reminds us of the inherent dominance of these entities, despite a generally subdued earnings outlook for the broader equity market.
Source: Financial Times, MarketWatch, Reuters
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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