Google, Apple, Facebook, Amazon, and Microsoft logos displayed in front of an EU flag.JUSTIN TALLIS/AFP via Getty Images
Mega-cap tech stocks have driven the bulk of the stock market’s gains in 2023, and they’ll probably do the same in 2024.
Goldman Sachs said it expects the top seven stocks in the S&P 500 to outperform the bottom 493 stocks next year.
Faster growth rates and reasonable valuations bode well for mega-cap tech stocks, Goldman said.
The “Magnificent Seven” tech stocks have vastly outperformed the broader stock market this year, and Goldman Sachs expects the trend to continue well into 2024.
“Our baseline forecast suggests that in 2024 the mega-cap tech stocks will continue to outperform the remainder of the S&P 500,” Goldman Sachs’ David Kostin said in a recent note.
The “Magnificent Seven” mega-cap stocks, which refers to Apple, Amazon, Alphabet, Meta, Microsoft, Tesla, and Nvidia, are responsible for 76% of the S&P 500’s 2023 gain of nearly 20%.
Nvidia is up more than 200% year-to-date, and even Apple, the world’s largest company, saw its stock price surge nearly 50% this year. The seven companies represent a collective $11.5 trillion in market value.
The extreme concentration of the stock market rally this year has kept bearish investors on high alert, but Goldman Sachs isn’t concerned and expects the gains to continue. Here’s why.
1. The fundamentals are better
The seven mega-cap tech stocks have more attractive fundamentals when compared to the S&P 500’s bottom 493 stocks.
They sport faster growth, higher profit margins, cleaner balance sheets, and reasonable valuations on a relative basis.
“Analyst estimates show the mega-cap tech companies growing sales at a CAGR of 11% through 2025 compared with just 3% for the rest of the S&P 500. The net margins of the Magnificent 7 are twice the margins of the rest of the index, and consensus expects this gap will persist through 2025,” Kostin said.
And while price-to-earnings valuations are elevated for the tech stocks, when accounting for growth, they’re actually in line with the rest of the market.
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