"Up 75% This Year"... Magnificent7 Doubled in Size Over 6 Years

S&P 500 Accounts for 30% of Total Market Capitalization

The strong performance of a select few big tech stocks, which drove the rise of the U.S. stock market this year, is expected to remain the main force behind the market rally next year as well.

According to financial information firm FactSet and others on the 17th (local time), the stock prices of the seven major tech companies known as the "Magnificent 7"?Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla, and Meta?have surged 75% as of the closing price on the 15th this year. During the same period, the stock prices of the remaining 493 companies in the S&P 500 rose by only 12%.

According to Goldman Sachs Global Investment, the Magnificent 7 accounted for about 30% of the total market capitalization of the S&P 500. This is roughly double the 15% share they held six years ago in 2017. Ann Mileti, head of active equities at Allspring Global Investments, noted, "Considering that the S&P 500 index represents a broad range of industries, this is a remarkable figure."

Among them, Nvidia showed an exceptionally high stock price increase of 234% (as of the closing price on the 15th). Microsoft, a major shareholder of OpenAI?the developer of ChatGPT that sparked the AI boom?and a leader in the AI industry, rose 55%, while Apple, the leading big tech stock, increased by 52%. Apple's market capitalization surpassed $3 trillion (approximately 3,904 billion KRW) for the first time ever in June as its stock price continued to soar.

Experts predict that the strong U.S. stock market led by the Magnificent 7 will continue into next year. The Magnificent 7’s stock prices fell 40% last year, wiping out a total market capitalization of $4.7 trillion.

The AI boom swept through the U.S. stock market, and Wall Street raised profit forecasts for AI companies, reversing investor sentiment. The Wall Street Journal commented, "The growing expectations for an early end to the Federal Reserve’s tightening, amid cooling employment and easing inflation, also provided momentum to these stocks."

However, some argue that the upward trend of these stocks is unlikely to continue through next year. Some tech stocks such as Amazon, Alphabet (Google), Meta, and Tesla are still trading below their prices at the end of 2021.

The valuations of these companies, which have moved on the short-term momentum of the AI boom, are relatively high compared to the average of the S&P 500 index. The 12-month forward price-to-earnings ratio (PER) of these seven stocks averages 31 times, about twice as high as that of the other 493 stocks.

Investors are also becoming more cautious. According to Refinitiv, technology-focused mutual funds and exchange-traded funds (ETFs) saw a net increase of $4.1 billion last month on a cumulative basis this year, which is only about half of the $7.9 billion recorded during the same period last year.

There are also views that it will be difficult to avoid the impact of a worsening global economic slowdown. Matthew Alton, chief market strategist at Raymond James Investment Management, said, "Next year, investors should focus on stocks that can benefit from a weaker dollar and interest rate cuts," citing industrials, materials, and transportation stocks as asset classes likely to perform well next year.

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