Magnificent Seven not a sign of a market bubble, says deVere CEO

The rise of the “Magnificent Seven “ tech stocks that include Meta and Microsoft are indicative of “fundamental shift”, mainly driven by AI, rather than as a bubble, said the CEO of deVere.

Saying that the seven stocks’ rise was “rattling nerves” among some investors about a speculative bubble, Nigel Green, CEO of the independent financial advisory and asset management group, said AI was reshaping entire industries and that this was among the contributing factors.

“Rather than a speculative mania, the market’s response to the Magnificent Seven seems to be grounded in the transformative power of AI, which is reshaping entire industries, enhancing productivity, and paving the way for the creation of new ones,” he said.

Green’s comments come as the seven tech stocks up to February not only account for about half of the gains in the entire S&P 500 but also contribute to over a quarter of the index’s total market capitalisation.

The other stocks are Nvidia, Apple, Alphabet, Amazon, and Tesla.

He noted that US stocks set another record on Thursday, when the S&P 500 rose 29.11 points, or 0.6%, to 5,029.73 and “squeaked” by its prior all-time high set last week.

“Nvidia, in particular, has been making headlines with an astonishing 50% surge in its stock value within the first two months of the year,” said Green. “However, labelling this surge as a bubble requires a nuanced understanding of the underlying factors driving these unprecedented gains.”

The combined market capitalisations of the companies reflected investor confidence in the long-term potential of AI, according to Green.

“Meta’s focus on the metaverse, Microsoft’s investments in cloud computing and AI-driven solutions, and Nvidia’s prowess in graphics processing units (GPUs) for AI applications underscore the importance of these companies in shaping the tech landscape,” he said.

Meta, for instance, is investing heavily in AI research to create more immersive and interactive experiences within the metaverse, noted Green, while Microsoft’s Azure cloud platform leverages AI to offer scalable and intelligent solutions for businesses, demonstrating a commitment to AI-driven transformation.

Green argues the premium placed on these stocks “reflects a consensus that they are at the forefront of a transformative era, where AI is not just a technological advancement but a fundamental driver of economic and industrial change”.

Also, unlike in the dotcom bubble where many companies with little to no profitability were “valued based on speculation rather than concrete fundamentals”,  the Magnificent Seven are “established giants with robust financials”.

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