Investors concerned about a potential tech bubble bursting this year can breathe a sigh a relief for now. At least according to analysts at JPMorgan.
Analysts at the bank said in note to investors Monday that the S&P 500's top tech stocks, commonly referred to as the Magnificent Seven, are actually undervalued relative to other stocks, MarketWatch reports.
The Magnificent Seven — which is made up of Google parent Alphabet, Amazon, Apple, Facebook parent Meta, Microsoft, Nvidia, and Tesla — account for about 28% of the market capitalization of the entire S&P 500.
“There is a concern over the very strong outperformance of the Magnificent Seven, but we note that the group is currently trading less stretched than a few years ago, given earnings delivery,” JPMorgan strategist Mislav Matejka wrote in the note.
The Magnificent Seven stocks are trading at lower than average prices compared to the past five years, the analysts said. They also highlighted that the Magnificent Seven collectively achieved net income growth of 27% in 2023, compared with a net income loss of 4% among the rest of the S&P 500.
“This is not to say that the group is immune to profit disappointments ahead,” Matejka wrote, “but in the case of general earnings disappointment, these stocks could still hold out better than traditional cyclicals.”
Conversely, the analysts argued that European cyclical stocks — those whose performance is more closely tied the health of firms such as car companies and luxury good makers — are the ones that are actually overvalued.
The state of play for the Magnificent Seven tech stocks
Magnificent Seven companies made early investments in AI, including Microsoft and Meta, are seeing those investments continue to pay off in 2024.
Meta stock is up 44% this year. Microsoft is up 8% and surpassed Apple as the most valuable company in the world in January.
Chipmaker Nvidia, which is powering much of the AI revolution, is up a whopping 87% in 2024 so far.
On the other hand, Tesla and Apple are the worst performing stocks in the Magnificent Seven in 2024, down 28% and 12%, respectively.