Article Source: Global Times New Media

Author: Feng Yaren Ren Zhong

Image Source: Generated by Unlimited AI

"The era of the 'Tech Seven Giants' in the stock market has come to an end." The US website "Business Insider" reported on the 26th that the "Tech Seven Giants," consisting of seven US companies including Apple, Google's parent company Alphabet, Facebook's parent company Meta, Nvidia, Tesla, Amazon, and Microsoft, now appear not so "giant," and are no longer even a "group of seven."

While the hot trend of artificial intelligence has driven the surge in tech stocks, some of the companies in the "Tech Seven Giants" are facing the dilemma of being kicked out of the group due to their slow layout in artificial intelligence. The industry insiders who first proposed the term "Tech Seven Giants" believe that this differentiation may mark the end of an era.

"I don't think these seven names will rise together."
The inventor of the "Tech Seven Giants" term, Mike O'Rourke, Chief Market Strategist at Jones Trading, wrote in a report titled "Rest in Peace, the Era of the Seven Giants," "The dominance of the 'Tech Seven Giants' in the stock market is coming to an end."

According to the report, when O'Rourke created the term "Tech Seven Giants" in April last year (although some say the term was first proposed by US Bank analyst Michael Harnett), the stocks of these 7 companies contributed an astonishing 88% increase to the market. Now, their control over the market has loosened. In January this year, Harnett stated that these 7 largest stocks accounted for only 45% of the S&P 500 index's increase. This is still a significant share, but noticeably less than before.

More and more investors are starting to question whether the seven giants can replicate last year's impressive performance. According to Agence France-Presse, currently, these 7 stocks account for only 13% of long positions in US stock hedge fund portfolios, while this proportion in the Russell 3000 index is 25%. In addition, in recent months, the moves by founders of companies such as Amazon and Microsoft to reduce their holdings have fueled speculation in the market that it may be time for these companies' stock profits to come to an end.

The "Business Insider" website reported that as the market rally expands, the "Tech Seven Giants" are taking different paths. O'Rourke said, "I don't think these seven names will rise together." Nvidia "is riding the artificial intelligence rocket to take off," and its stock price has soared, rising by 66% to date. Just a few weeks ago, Meta's earnings report was released, and its stock price set a record by rising 20% in one day.

The performance of these companies stands in stark contrast to Tesla, whose stock has fallen by 22% since January due to dim prospects for US electric vehicle demand. Since the beginning of this year, Apple has also struggled, with its stock falling by about 1.45%. O'Rourke stated that these companies still have a significant influence in the market. The difference now is that they are no longer developing in the same direction, and their performances will begin to offset each other.

Divergence in Artificial Intelligence

As for why the "Tech Seven Giants" are diverging, the "Business Insider" website analysis suggests that the main reason is everyone talking about artificial intelligence. The Financial Times of the UK analyzed that Nvidia is in a leading position in the advanced semiconductor field, while Microsoft and Amazon mainly provide cloud storage, and Meta and Alphabet also have their own large language models. At the same time, Microsoft has begun to apply artificial intelligence to its core products to increase productivity.

In contrast, Apple is currently not seen as a major beneficiary of the artificial intelligence boom. The "Business Insider" website analysis stated that companies like Tesla, although they also hope to be seen as artificial intelligence giants, the market still sees their core business as manufacturing cars. O'Rourke said, "The value and growth differences of these companies are too great, and their main common point now is that they are super large stocks and have performed well in the past."

Even though the "Tech Seven Giants" are diverging, their overall strength is still considerable. The US website CNBC cited the latest research report from Deutsche Bank, stating that the financial strength of the "Tech Seven Giants" is almost greater than that of most countries in the world. Deutsche Bank analysts emphasized that the total market value of just the "Tech Seven Giants" would make it the world's second-largest stock trading market, twice the size of the fourth-ranked Japan. In addition, the market value of Microsoft and Apple alone is almost the same as the total market value of listed companies in France, Saudi Arabia, and the UK.

This concentration of investment has led some analysts to express concerns about the risks to the US and global stock markets. Jim Reid, Director of Global Economic and Thematic Research at Deutsche Bank, warned that the US stock market is currently in the "most concentrated" period of investment, similar to the period of the US technology stock bubble around 2000 and the US economic crisis in 1929.

Is the "Group of Seven" being reorganized?

The "Business Insider" report stated that the label of the "Tech Seven Giants" may not exit the stage, but as the performance of these companies continues to diverge, it is very likely that the "Tech Seven Giants" will be reorganized. Dan Niles, founder and portfolio manager of Satori Fund, told CNBC, "The 'Tech Seven Giants' should only be left with Nvidia, Meta, Amazon, and Microsoft, or the 'Fantastic Four.'" "Apple and Tesla's stock prices have been falling this year, and Google's performance has also lagged behind the market. These companies are facing profit problems, and you can see this from their stock prices," Niles said. "The 'Fantastic Four' are doing very well."

Jim Paulsen, Chief Investment Officer of the investment and wealth advisory firm Laffer Tengler Investments, told CNN that he believes the "Tech Seven Giants" should be consolidated into the "Five Giants," by removing Tesla and Apple. Louis Navellier, founder of the US fund management company Navellier & Associates, wrote in a report, "The 'Tech Seven Giants' are undergoing major changes, and funds are flowing to more small and medium-sized companies that are thriving due to sales and profit growth." Navellier believes that 7 companies such as the US large-scale natural gas shipping operator Dorian LPG Ltd, the US optoelectronic component manufacturer M-tron Industries, the Danish pharmaceutical company Novo Nordisk, and the US energy company PBF Energy will see astonishing sales growth this year, and are expected to outperform the "Tech Seven Giants."

Nevertheless, some investors still have confidence in the "laggards" among the "Tech Seven Giants." Nancy Tengler, Chief Investment Officer of the investment and wealth advisory firm Laffer Tengler Investments, stated that her company plans to increase its holdings of Tesla stock. She holds a long-term positive view on Tesla's stock, believing that the company's innovation in developing autonomous driving software and electric vehicle charging stations will help alleviate the impact of demand issues. "I won't write off those underperforming companies," Tengler said.

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