Muscle
Tech heavyweights delivered another powerful set of earnings last week. But how much longer can they do all the heavy lifting?
The Magnificent 7 stocks – Apple ($AAPL), Microsoft ($MSFT), Amazon ($AMZN), Alphabet ($GOOGL), Meta ($META), NVIDIA ($NVDA), and Tesla ($TSLA) – have been Wall Street’s powerlifters. For a while, they’ve held up investor confidence even when the rest of the S&P500’s core has shown signs of fatigue.
And most of the Mag 7 saw last quarter as another opportunity to flex: solid revenue gains, high-margin operations, and record-breaking capex in AI infrastructure. But investors? They’re sizing them up very differently.
Take Meta. It beat expectations with 17% YoY revenue growth to US$76.4b and a 36% increase in net income to US$18.3b. To the wider market, that’s the equivalent of Meta lifting twice its weight. Shares rallied nearly 12% after earnings.
Meanwhile, Amazon may have beat EPS estimates but its stock fell 8% post-earnings. That’s down to conservative forward guidance and an underwhelming 18% YoY growth for AWS when peers were posting record numbers.
There are high expectations for these heavyweights. Collectively, they account for over US$13t in market cap and nearly a third of the benchmark index. Plus their share prices alone have made up over 60% of the S&P 500's YTD gains. Talk about a top-heavy lifter.
So have the Mag 7 hit peak hypertrophy? Or are they warming up for another set? If one business slips, the imbalance could cause the rest of the market to lose its footing.
Case in point: Tesla. It’s feeling the combined weight of competition and cost pressures. And Apple may have posted its strongest quarterly revenue growth since December 2021, but core business segments like iPad and ‘wearables’ are plateauing.
Some investors believe it’s time for a shift. Instead of piling more weight onto tech, they’re scouring overlooked sectors for underutilised strength and growth potential.
Aerospace and defence stocks have driven a rally in the industrial sector: energy equipment manufacturer GE Vernova ($GEV) has rallied 93% YTD, while British defence contractor BAE Systems ($BAESY) has gained 71%.
And beyond the U.S. markets are the Granolas – a group of 11 international firms that have little to do with cereal, but are still eating the European STOXX 600 index for breakfast. GSK ($GSK), Roche ($RHHBY), ASML ($ASML), Nestle ($NSRGY), Novartis ($NVS), Novo Nordisk ($NVO), L'Oreal, LVMH ($LVMUY), AstraZeneca ($AZN), SAP ($SAP), and Sanofi ($SNY) accounted for 60% of the STOXX 600’s growth.
U.S. tech titans are still in beast mode, but rotation season could be around the corner. Smart money might already be switching up the routine.
This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.
