AI: 'Magnificent 7' AI ebbs and flows

...most ride AI tail winds in early 2024

Most of the discussion in these pages tends to be on the secular and fundamental tech drivers behind the AI Tech Wave. But the financial winds are also worth noting from time to time.

In particular for the so called Tech ‘Magnificent 7, which continue to nudge 30% of the S&P 500 and drive its concentrated performance, as noted by the NYTimes:

“Since the index hit its latest low in October 2022, seven stocks — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — have collectively risen nearly 117 percent, far outpacing the performance of the other 493 companies in the S&P 500. Together, these stocks have become known as the “Magnificent Seven.”

“These seven companies account for 29% of the S&P 500’s market value.”

“But it’s not just the stellar price performance of these stocks that helped lift the S&P 500 to a closing record on Friday. The stock index is weighted by market capitalization, meaning the moves of the largest companies contribute more to the performance of the index. In other words, the influence of these seven stocks comes down to their size. Their market value has risen more than 60 percent since October 2022.”

This week in early 2024 have both Microsoft and Google continuing to benefit from AI optimism, along with AI GPU gatekeeper Nvidia.

As the WSJ notes today:

“Microsoft on Thursday became the second company ever to end the trading day valued at more than $3 trillion, a milestone reflecting investor optimism that one of the oldest tech companies is leading an artificial-intelligence revolution. 

“In the past decade, Microsoft’s success has come from smart bets by Chief Executive Satya Nadella. One of his biggest gambles in recent years has been partnering with an untested nonprofit startup—generative AI pioneer OpenAI—and quickly folding its technology into Microsoft’s bestselling products. That move made Microsoft a de facto leader in a burgeoning AI field many believe will retool the tech industry.”

“Because of the OpenAI relationship “Microsoft to me is ahead of Alphabet (Google) and Meta and has a great shot of being a software leader in AI,” said Synovus Trust portfolio manager Daniel Morgan, who owns Microsoft shares.”

“The AI boom unofficially kicked off in November 2022 with the release of ChatGPT, a chatbot built by Silicon Valley nonprofit startup OpenAI that uses so-called “large language models” to write poems, craft emails and generate computer code.”

With both Microsoft and Apple trading around $3 trillion in market cap each, the media of course is focused on both in particular. I recently talked about both in terms of their relative fundamental AI prospects.

As the WSJ continues:

“The sheer size of Microsoft and peers like Apple means that tech stocks play an outsize role in the broader stock market’s performance. When the year began, the two tech companies accounted for 14% of the market-value weighted S&P 500, according to S&P Dow Jones Indices.”

Microsoft and Apple both now surpass the value of five of the 11 sectors within the S&P 500, according to Dow Jones Market Data, including consumer staples, energy, real estate, materials, and utilities.”

Google hasn’t been far behind as noted by Yahoo! Finance:

“Alphabet Inc. shares surged Wednesday and briefly eclipsed the company’s all-time high close in intraday trading as optimism surrounding its artificial intelligence capabilities boosts the stock.”

“The frenzy for artificial intelligence has spurred an ongoing rally in the Magnificent Seven tech behemoths, helping Alphabet cement its position as the third most valuable US company behind Apple Inc. and Microsoft Corp.”

Mr. Market is currently less enthusiastic on Tesla due to some non-AI trends and issues, with several observers pointing out how it stands out against the otherwise strong tailwinds for the others in the ‘Magnificent 7”.

I continue to view Google as being in a strong fundamental position on the AI augmented Search race with Microsoft/OpenAI, and have discussed the fundamental tech positions of Microsoft, Meta, Amazon, Nvidia and Elon/Tesla as well as of course OpenAI.

But as I’ve also discussed for a while now, the financial AI tales continue to wag the market, dog and all. So both financial and secular trends always bear watching. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)