Mag 7 stocks are still about a third of the S&P 500, but have slipped

In short: The “Magnificent 7” tech giants still make up about one third of the S&P 500, but their stock prices have been weaker in recent months.

What's going on

The “Magnificent 7” is a nickname for a small group of very large tech companies that have had an outsized impact on the US stock market. The Financial Times says these stocks still account for roughly a third of the total value of the S&P 500, which is a major index that tracks 500 large US companies.

Even so, the group has been “wobbling” lately. Since early November, the Mag 7 stocks as a group have fallen about 12%, while the other 493 companies in the S&P 500 rose about 1%, according to the column. In this version of the Mag 7, Broadcom is included instead of Tesla.

Two chip makers, Nvidia and Broadcom, stand out. Their share prices have dropped even as analysts raised profit forecasts for the next couple of years. That combination makes them look cheaper when measured by the price to earnings ratio, which is a simple way investors compare a stock’s price to the company’s profits (like comparing the price tag on a house to the rent it could earn).

The column also points to investors becoming more selective about who benefits most from AI. It notes different market views of Alphabet and Microsoft, and it highlights that several of these companies are spending heavily on AI, especially on data centers, which are large buildings full of computers that run online services.

What to watch

A key question is whether the biggest “platform” companies, including Meta, Microsoft, Alphabet, and Amazon, slow their AI spending if investors become more cautious. If confidence keeps fading, these stocks could continue to weigh on many people’s retirement accounts and index funds.

Source: Financial Times