Why ‘Magnificent 7’ stock mania is drawing comparisons to the dot-com bubble

The market cheerleading around AI may be new, but investors pouring into high-flying tech names has run its course before. So, in other words, buyer beware.

The staggering rise of the “Magnificent Seven” resembles bubbles of the past, which analysts say carries risks for late-arriving investors who stand a lower and lower likelihood of generating strong returns as prices climb. Parallels to the dot-com boom in the late nineties and the eventual bust that followed — who could forget Pets.com and Webvan? — have gained renewed attention.

In the early 2000s the Fed had been in tightening mode, real yields were elevated, and while central bankers did eventually ease policy aggressively, it failed to calm a jittery equity market, said Nicole Tanenbaum, partner and chief investment strategist at Chequers Financial Management.

Research from Goldman Sachs shows the S&P 500 has never been this top-heavy, which is leading to gains in a handful of stocks, the “Magnificent Seven,” driving the major average higher. (Goldman Sachs Global Investment Research)

The divergence between the biggest tech stocks on Wall Street and the rest of the S&P 500 (^GSPC) continues to grow, drawing comparisons to the inflated valuations of tech companies in the dot-com era.

The Magnificent Seven tech stocks, coined by Bank of America analyst Michael Hartnett, are comprised of Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA). They have hands in hardware and software, artificial intelligence and cloud computing, and are seen by investors as powerful engines for new technologies that power the economy and enmesh themselves in the lives of billions of people.

Collectively they are up 80% this year. And when they are stripped out of the S&P’s growth, the rest of the index is basically flat, according to an analysis by Apollo Global Management’s chief economist Torsten Slok.

“AI is the latest shiny new toy,” Slok said of Wall Street’s excitement behind the growth of the Magnificent Seven, whose valuations are beginning to look…


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