“The Magnificent Seven” Technology Stocks and Their Impact on the S&P 500: A Review 4 Years Later

Abstract

Purpose:  The subject of this research is the performance of the S&P 500 and the influence of the large technology stocks on it. The interest to this issue is provoked by the continued record-breaking process in the levels of the US stock market. The purpose of the study is to find out: whether recent growth of the index and of the seven large companies (Apple, Amazon, Microsoft, Alphabet, Meta Platforms, Nvidia и Tesla) is supported or not by the key financial indicators, and to what extent the index indicators are influenced by the seven large technology stocks.

Design/Methodology/Approach: The current study is a kind of a relook - four years later, of the same issues, explored by the author during the Covid-19 pandemic in 2020. Historical performance of the S&P 500 is reviewed, using its key financial indicators, such as EPS, EPS growth, ROE, as well as “price-to-earnings” (PE) and “price-to-book” (PBV) market ratios. The performance of the seven large technology stocks (Apple, Amazon, Microsoft, Alphabet, Meta Platforms, Nvidia and Tesla) is reviewed in parallel.

Findings: The elaborate comparative analysis of the above set of fundamental indicators does not seem to support the high current levels of the S&P 500 as a whole and of most of the companies from “The Magnificent Seven”. The major doubt comes because of the unreasonably high levels of most reported PE and PBV ratios, as compared with historic average levels for the market. At the end, fundamental PE and PBV ratios are also derived and compared with the actual market PEs and PBVs of the index and of the seven companies. The derived fundamental PE and PBV ratios also do not support the high levels of the S&P 500 as a whole, and the prices of most of “The Magnificent Seven” technology stocks. 

Practical Implications: The important implications for investors are that the S&P 500 as a whole and most of “The Magnificent Seven” stocks look significantly overpriced at the background of fundamentals in 2024.

Originality/Value: The analyses of this type are normally of private character, done mainly within business entities, specialized on financial markets. Academic research of this matter, which is publicly available, and following the approach of the current study, is extremely limited.

Paper Type:  Research Paper