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Big Tech stocks ruled the market this year. You’d be unwise to bet against them in 2024, analysts say.

Nvidia Jensen Huang

Semiconductor chipmaker Nvidia has been the best-performing stock listed on the S&P 500 this year.I-HWA CHENG/AFP via Getty Images

  • The “Magnificent Seven” Big Tech stocks ruled the market in 2023.

  • The group have accounted for around three-quarters of the benchmark S&P 500’s total gains this year.

  • Many analysts remain reluctant to bet against them in 2024, with investors still captivated by AI and Fed interest-rate cuts on the horizon.

Mega-cap tech stocks dominated the US market this year, boosted by the rise of artificial intelligence. And with AI still captivating investors and expectations for Federal Reserve interest-rate cuts growing, most analysts are hesitant to bet against a repeat performance in 2024.

The so-called “Magnificent Seven” group – Apple, Microsoft, Google owner Alphabet, Amazon, Nvidia, Facebook parent Meta Platforms, and Tesla – have each racked up stellar gains over the past 12 months.

Nvidia has grabbed the headlines with a 240% surge, which powered the chipmaker to its first-ever $1 trillion valuation back in May and tripled CEO Jensen Huang‘s personal fortune.

But Meta and Tesla have also rebounded from dismal years to post triple-digit returns, while as a grouping the Big Tech behemoths have left the S&P 493 – a pejorative term used to describe the sluggish performance of the rest of the S&P 500 – eating dust.

 

As of late November, the Magnificent Seven had climbed 71% year-to-date, according to data from Goldman Sachs, with the remainder of the benchmark index edging up just 6% over the same period.

The Wall Street bank’s chief US equity strategist David Kostin expects the group to carry on delivering shareholders better returns than the so-called S&P 493 next year.

“Our baseline forecast suggests that in 2024 the mega-cap tech stocks will continue to outperform the remainder of the S&P 500,” he said in a research note last month.

One obvious reason to snap up shares in the Magnificent Seven is that the group appears to be uniquely positioned to enjoy a significant earnings boost thanks to the rise of AI.

Nvidia, for example, dominates the market for graphics processing units (GPUs), while Microsoft has established a potentially lucrative partnership with Sam Altman’s OpenAI and Google made its Gemini AI model available to companies this month. Other members of the mega-cap group like Apple and Amazon appear to be considering upping their spending on AI, too.

“AI will carry on being a dominant theme in 2024 – we’re kind of only scratching the surface of it at the moment,” Minerva Analysis founder Kathleen Brooks told Business Insider in a recent interview. “You can see Nvidia and Microsoft dominating there already, and these tech giants are so cash-rich – they’ve got a lot of resources and a big war chest behind them.”

Meanwhile, Fed chair Jerome Powell’s recent hint that the central bank has investors dreaming of a broader “everything rally” – but that’s a scenario that would still benefit the US’s seven-largest companies by total market capitalization.

Kostin upped his own forecast for the S&P 500 to 5,100 points in response to Powell’s comments, joining Bank of America’s Savita Subramanian and Deutsche Bank’s Binky Chadha in predicting the benchmark index will set new record highs in 2024. The Magnificent Seven dominates the gauge to such an extent that the group would probably have to have another banner year to make those outlooks achievable.

“Ultimately if you’re selecting stocks at all, you want to be selecting these ones,” Brooks told Insider.

“What market? They are the market,” she added. “Betting against the Magnificent Seven just doesn’t seem like a good idea.”

Read the original article on Business Insider

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