Jonathan Golub, chief U.S. equity strategist at UBS Investment Bank, said the so-called “Magnificent Seven” stocks include Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta ( META), Nvidia (NVDA) — From Overweight to Neutral in a new research note on Monday.
His call is heard as the Magnificent 7. That includes Tesla (TSLA), which just posted its biggest weekly market cap loss in history. All seven tech giants are trading below their recent highs, as highlighted by Nvidia's 10% daily drawdown, its worst single-day price performance since March 2020.
Although Golub rates sectors within the S&P 500 (^GSPC) rather than individual stocks, he still rates technology as “overweight” outside of the six stocks named in the memo. But for large companies that have seen strong revenue growth over the past year, the tide may be turning, and Golub believes performance in other areas will outperform the S&P 500's biggest stocks. .
“Investors believe the rally in mega-cap stocks is due to the influence of animal spirits and AI,” Golub wrote. “However, our research shows that a surge in earnings momentum (changes in future growth expectations) has driven this upside. Unfortunately, this momentum is breaking down.”
The graph below highlights Golb's point.
According to FactSet's consensus forecast, earnings for these five companies are expected to end the year with just under 20% year-over-year growth in the fourth quarter, reflecting much slower-than-traditional growth. By that point, the consensus predicts that the other 495 companies' profits will have increased about 17% year over year, a significant jump from current growth rates.
“The Big Six downgrade (from overweight to neutral) is not predicated on expanding valuations or skepticism about AI,” Golub wrote. “Rather, it is a recognition of the difficult performance and cyclical forces weighing on these stocks. These forces do not apply to other TECH+ companies or other markets in the same way. Not applicable.”
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