The Magnificent Seven, the tech darlings that have driven the current stock market rally, are great. But investors will broaden their tech appetites beyond those hard-charging stocks.
That is the view of Dan Ives, the well-regarded tech analyst at Wedbush Securities Inc. The Magnificent Seven leapt 71% in 2023 through mid-November, by Goldman Sachs’ estimate. The S&P 500 Index as a whole was up 18% as of Wednesday. But the seven’s contributions to the market’s advance is outsized, as the rest of the index’s increase would be minuscule without the Mag Seven, per a Nasdaq analysis.
Some strategists doubt that the seven stocks can keep up their pace. “They won’t be able to sustain this growth,” says Neil Hennessy, chief market strategist at Hennessy Funds. Goldman has reported that hedge funds are trimming their positions in tech, considering the sector overbought.
In Wedbush’s view, however, the breakthroughs in artificial intelligence and the movement of data to the cloud will power the seven and other tech providers even more. “Heading into 2024 we believe the tech sector is set up for an acceleration of spending around cloud and AI that we believe is being significantly underestimated by [Wall] Street,” analyst Ives wrote. the enthusiasm will then “spread like brushfire” beyond the seven top tech stars.
This year, the Mag Seven have each posted stock-price hikes well ahead of the performance of the overall tech sector overall, which is up 50%, according to Yardeni Research. The best performer of the seven is Nvidia, ahead 236%, with Meta Platforms in second place at 166%. The worst is Apple at 51%.
To be sure, some tech names with AI or cloud bona fides have already done extremely well, on par with the best of the Magnificent Seven. Ives has pointed to five outside of the storied leaders.
CrowdStrike Holdings Inc., for instance, has surged 125% this year. It specializes in endpoint security, protecting devices such as servers and laptops that are linked into networks. Another big gainer outside the charmed circle is MongoDB Inc. (the name is derived from the word “humongous”), which crunches major data for businesses. Its stock has vaulted 120%.
In fairness, these five either are unprofitable (CrowdStrike and Mongo) or have stratospheric multiples. Cybersecurity firm Palto Alto Networks, another of Ives’ picks, has a price/earnings ratio of 162. The Mag Seven, all in the black, sport P/Es that range from Tesla at 78 down to Google-parent Alphabet at 26.
Of course, numerous unheralded, if promising, alternatives exist in the tech realm. The InvestorPlace stock website recommends three, including Global Payments, which provides computer services to retailers but is harmed by the end of the stay-at-home e-commerce boom. It is down 50% from its 2021 peak. Earnings per share, though, have risen 12% this year.
As a result, Ives declared, “the fundamental tech growth stories/use cases are accelerating.”
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Tags: Alphabet, Apple, CrowdStrike, Dan Ives, Global Payments, Goldman Sachs, Google, Meta, Mongo, Neil Hennessy, Nvidia, Palto Alto Networks, Tesla, Wedbush