The 'Magnificent 7' with Diminished Firepower

US Big Tech 7 Stocks Fall Amid Two-Year Treasury Yield Drop
Leading Stock Apple Down Nearly 10% in One Year

US large-cap big tech stocks are on a downward trajectory due to bleak fourth-quarter earnings forecasts. Signs of an economic slowdown and geopolitical tensions between Israel and Palestine are expected to impact fourth-quarter results, leading to weakened investor sentiment and increased downward pressure on stock prices. Wall Street anticipates that this situation will be difficult to resolve in the short term.

According to Bloomberg on the 5th (local time), the stock prices of the seven major US big tech companies known as the "Magnificent 7"?Nvidia, Apple, Microsoft (MS), Meta, Amazon, Alphabet (Google), and Tesla?have fallen an average of 9% from their highs over the past year.

Among them, Tesla, which had recorded a strong stock price increase, experienced the largest drop, plunging 25%. Apple, the leader among big tech stocks, saw its stock price decline by about 9.7% during this period, erasing more than $300 billion (approximately 394 trillion KRW) in market capitalization.

[Image source=Reuters Yonhap News]

The weakness in big tech stock prices was largely influenced by shaken investor sentiment due to uncertain earnings forecasts for the fourth quarter of this year. Tesla warned that its electric vehicle business would face prolonged difficulties as demand weakens amid high interest rates and inflationary pressures. Google expressed concerns about growth in its core cloud business, while Meta revealed anxieties about advertising demand in the fourth quarter. Meta stated that advertising demand was hit by the Israel-Palestine conflict, making next year's business forecasts difficult.

Bloomberg pointed out, "Although the Nasdaq 100 index rallied last week, rising 6.5% to reach its highest level in a year, investor anxiety toward the seven major companies is increasing."

Big tech stocks have shown relatively strong resilience despite pressures from soaring US Treasury yields and geopolitical conflicts such as war. This strength was supported by solid earnings.

According to Bloomberg Intelligence, the Magnificent 7 posted an average 50% year-over-year increase in net income for the third quarter of this year, surpassing market expectations of 36%. Among the seven, Tesla was the only company to see a sharp 44% decline in net income compared to the same period last year. Currently, six of the seven companies, excluding Nvidia, have already reported their third-quarter earnings. Nvidia is scheduled to announce its third-quarter results on the 21st.

As debates over the valuation of these big tech companies arise, Wall Street is predicting further declines. These valuations, which have moved based on short-term momentum such as artificial intelligence (AI), are relatively overvalued compared to the average of the S&P 500 index. According to Bloomberg data, the 12-month forward price-to-earnings ratio (PER) of these seven stocks averages 31 times. This is about twice as high as the PER of the 493 other stocks within the S&P 500 index excluding these seven companies.

Max Wasserman, chief portfolio manager at Mirama Capital, explained, "If geopolitical variables such as international turmoil occur or economic conditions like interest rates change, the US stock market, concentrated in these seven companies, will inevitably be impacted."

This content was produced with the assistance of AI translation services.