- The AI boom has seen the rise of a new grouping of mega-cap tech stocks, known as the "Magnificent 7."
- The group's combined market value has surged almost 75% this year to $12 trillion – almost triple the GDP of Germany.
A new assortment of mega-cap tech stocks is ruling the S&P 500 this year, also known as the "Magnificent 7."
They are the seven largest US-listed companies – tech behemoths Apple, Microsoft, Google parent Alphabet, Amazon and Meta Platforms – as well as two new entrants Nvidia and Tesla.
Thanks to a stunning tech-stock rally fueled by hype over artificial intelligence, the combined market capitalization of the group has soared 74% this year, or $5.1 trillion, to an eye-watering $12 trillion.
To put in perspective – that's almost triple the size of Germany's economy, which was valued at just above $4 trillion at the end of 2022, according to the World Bank.
Apple, Microsoft
Earlier this year, Apple's valuation soared past $3 trillion, the first company ever to reach the milestone. The gains reflect the continued success of the firm's high-tech products, such as the iPhone and the iPad, which have an ecosystem of services and other offerings built around them.
Microsoft is likely to be the next mega-cap tech stock to reach a $3 trillion valuation, according to Morgan Stanley.
In July, the bank called the stock a "Top Pick" and said it has 10% upside potential from current levels thanks to its "pole position" in the generative AI race that should help it quickly monetize the trend.
Nvidia, Tesla
Meanwhile, Santa Clara-based chipmaker Nvidia has surged about 239% this year, propelling the company into the trillion-dollar market-cap club for the first time in history.
It also amplified the wealth of the company's CEO Jensen Huang to $44 billion, making him the 28th richest person in the world, per the Bloomberg Billionaires Index.
Tesla's entry into the elite group is also justified. The Elon Musk-owned carmaker's stock has seen an impressive 106% rally this year – thanks to EV demand buoyed by price cuts, charging-tech deals with competitors Ford and GM, and the investor frenzy over AI.
"One way to get exposure to AI is through the 'Magnificent Seven' - Amazon, Alphabet (Google), Apple, Meta, Microsoft, Nvidia, and Tesla," Saxo Bank said in a mid-year report.
"These companies all play a key role in the development and application of AI, but it worth remembering that the key driver of their earnings is still not AI," it added.
The seven stocks are responsible for most of the gains in the S&P 500 this year, and have helped push the benchmark index into bull market territory. But not everyone's convinced.
Fundstrat's Mark Newton has pointed out 8 warning signs investors should watch out for to determine whether a stock-market correction is in the cards.
This article was originally published on July 9, 2023.