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Blog » Money Tips » The Magnificent Seven: Market Performance and Valuations

The Magnificent Seven: Market Performance and Valuations

Posted on July 19th, 2023
magnificent seven

This year, the market’s performance has been heavily influenced by the so-called Magnificent Seven companies: Tesla, Apple, Amazon, Microsoft, Nvidia, Google, and Meta. As these companies make up a significant percentage of the S&P 500 and NASDAQ, their earnings reports are essential for investors to understand the market’s direction.

In this article, we will explore the outstanding returns these companies have generated throughout the year, examine whether their valuations are justified, and assess the impact of Tesla’s recent earnings report.

The Magnificent Seven’s Market Performance

As of July 18th, the average return for the Magnificent Seven through the year has been an astonishing 107%. Individually, all seven companies have experienced remarkable growth, with Nvidia leading the pack with a 232,000% increase, followed by Tesla with a 170,000% increase. Additionally, Amazon, Microsoft, Google, and Apple have also had impressive returns, ranging between 39,000% and 55,000%.

See Also: Five Companies Bringing The Future to US

Valuations: Fair or Overpriced?

As the companies continue to perform well, investors have questioned whether their current valuations are justified or merely a bounce back from the previous year’s crush. To answer this question, one must consider their price-to-earnings (P/E) ratios, which indicate how many dollars investors are willing to pay for every dollar’s worth of corporate earnings.

Currently, the average P/E ratio of the Magnificent Seven is 112, significantly higher than the historical average of 15 to 18. Furthermore, individual companies’ P/E ratios also tower above the historical average, with Nvidia at 250, Tesla at 86, and Amazon at 312. Although these figures may seem high, supporters argue that their growth potential and anticipated earnings justify the valuations.

Analysts’ Earnings Expectations and the Impact on Stock Performance

As a counterargument to the skyrocketing P/E ratios, some might point out that analysts’ earnings estimates could provide a more forward-looking perspective. In fact, for certain companies within the Magnificent Seven, analysts have become more optimistic regarding their earnings growth for 2023 and 2024 – namely, Nvidia and Meta. However, the expectations for Tesla, Microsoft, Google, and Apple have not increased significantly.

Despite the lack of significant change in analysts’ earnings expectations, the stock prices of the Magnificent Seven have risen substantially, with an average increase of 107%. While it is possible that these companies could continue to climb even higher, their current valuations are difficult to justify based on the analyst’s expectations alone.

Tesla’s Earnings and Market Implications

Tesla’s latest earnings report is particularly crucial due to the influence of the Magnificent Seven on the broader stock market indices, the S&P 500 and the NASDAQ. In fact, these companies combined make up around 30% of the S&P 500 and over 55% of the NASDAQ. Considering their significant impact, investors have been carefully evaluating Tesla’s earnings for clues regarding the future direction of the market.

Conclusion

Although the Magnificent Seven have dominated market performance and significantly impacted valuations, it is essential for investors to take a step back and assess the true worth of their holdings. While Tesla’s recent earnings may have been influential in the short term, it is crucial to examine these companies’ long-term growth potential and industry impact to create well-rounded investment strategies. As impressive as their recent growth has been, investors should remain vigilant about the possible risks posed by overinflated valuations and further developments in these influential companies.

 

FAQ: The Magnificent Seven and Their Impact on the Market

1. What are the Magnificent Seven companies mentioned in the article?

The Magnificent Seven companies are Tesla, Apple, Amazon, Microsoft, Nvidia, Google, and Meta (formerly known as Facebook). These companies have had a significant influence on the market’s performance throughout the year.

2. How has the market performed under the influence of the Magnificent Seven?

As of July 18th, the average return for the Magnificent Seven has been an astonishing 107% through the year. Each of the seven companies individually experienced remarkable growth, with Nvidia leading the pack with a 232,000% increase, followed by Tesla with a 170,000% increase.

3. Are the valuations of the Magnificent Seven justified or overpriced?

The current average price-to-earnings (P/E) ratio for the Magnificent Seven is 112, significantly higher than the historical average of 15 to 18. While some argue that their growth potential and anticipated earnings justify these valuations, others question whether they are overpriced and a result of a bounce back from the previous year’s crash.

4. How do analysts’ earnings expectations align with the stock performance of the Magnificent Seven?

For certain companies within the Magnificent Seven, namely Nvidia and Meta, analysts have become more optimistic regarding their earnings growth for 2023 and 2024. However, the expectations for Tesla, Microsoft, Google, and Apple have not increased significantly. Despite this, the stock prices of the Magnificent Seven have risen substantially, raising concerns about the justification of their current valuations based on analysts’ expectations alone.

5. Why is Tesla’s latest earnings report crucial for the market?

Tesla’s latest earnings report is particularly important due to the significant impact of the Magnificent Seven on the broader stock market indices, such as the S&P 500 and NASDAQ. These companies combined make up around 30% of the S&P 500 and over 55% of the NASDAQ, making Tesla’s earnings influential for understanding the future direction of the market.

6. What should investors consider when evaluating investments in the Magnificent Seven?

While the Magnificent Seven have demonstrated impressive growth, investors should take a step back and assess the true worth of their holdings. It’s essential to consider the companies’ long-term growth potential and industry impact to create well-rounded investment strategies. Vigilance is necessary to understand and manage the possible risks posed by overinflated valuations and further developments in these influential companies.

Taylor Sohns MBA, CIMA®, CFP®

Taylor Sohns MBA, CIMA®, CFP®

Taylor Sohns is the Co-Founder at LifeGoal Investments. He received his MBA in Finance. He currently has his Certified Investment Management Analyst (CIMA) and a Certified Financial Planner (CFP). Taylor has spent decades on Wall Street helping create wealth.

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