TSLA, MSFT, GOOG will do well in 2024, says Goldman Sachs.
According to Goldman Sachs (GS), the "Magnificent Seven" tech stocks have vastly outperformed the broader US market in 2023.
Based on GS’s baseline forecast, these 7 mega-cap tech stocks are expected to continue to outperform the remainder of the S&P 500 in 2024. (see below headlines)
The "Magnificent Seven" (Mag 7) are:
Nvidia (NVDA).
Tesla Inc (TSLA).
Collectively, these 7 US stocks:
Represent a collective $11.5 Trillion in market value.
Are responsible for 76% of the S&P 500's 2023 gains of nearly 20%. (see below)
Using Nvidia as example.
It is up > 230% YTD.
When it started in 2023, it was $143.15 on 03 Jan 2024.
By 24 Nov 2023, although off its peak, it is still $477.76.
Another salient example would be Apple Inc.
It is up > 50% YTD.
When it started in 2023, it was $125.07 on 03 Jan 2024.
By 24 Nov 2023, although off its peak, it is still $189.97.
The extreme concentration of the stock market rallies in 2023, has kept bearish investors on high alert, but Goldman Sachs isn't concerned and expects the gains to continue. Here's why.
1. Fundamentals are better
The Mag 7 stocks have more attractive fundamentals when compared to the S&P 500's bottom 493 stocks.
On a relative basis, they:
Sport faster growth.
Higher profit margins.
Cleaner balance sheets.
Reasonable valuations on a relative basis.
Analyst estimates show the Mag 7 growing sales at a CAGR of 11% through 2025, compared with just 3% for the rest of the S&P 500.
Net margins of the Mag 7 are twice the margins of the rest of the index, and consensus expects this gap to persist through 2025.
While price-to-earnings (P/E) valuations are elevated for the tech stocks, when accounting for growth, they are actually in line with the rest of the market.
On an earnings-weighted basis, the Mag 7 long-term expected EPS growth is 8% points faster than the median S&P 500 stock (+17% vs. +9%).
On a PEG ratio basis, the relative valuations are in line with the 10-year average.
2. Mag 7’s 2022 crash.
Actually, the Mag 7’s 2023 stellar performances come after a brutal 2022, where they have been severely punished by investors, collectively falling a whooping -39%. (see below)
From their peak:
Meta Platform Inc, fell > -70%.
Nvidia dropped > -60%.
Amazon share price was cut by -50% in 2022.
All else considered, the 2023 “sharp recovery” could hardly be marveled at, its rather ordinary in my humble opinion.
In summary, the dominance of Mag 7 in 2023, largely reflected a reversal of meaningful underperformance in 2022.
3. No return relationship for top seven S&P 500 stocks
In 2023, the 30 percentage point outperformance of the Mag 7, relative to S&P 500’s remaining 493 stocks has been the 2nd largest annual difference since 1970.
Historical analysis shows there is no relationship between the trailing and forward returns of Mag 7, relative to the 493 other stocks.
The stock market has seen a big increase in 2023, but it is mainly due to only the Mag 7 doing really well.
Investors are concerned that this narrow focus might not be a sign of a strong market overall.
However, Goldman Sachs disagrees. They believe that even when market is narrowly focused, it can still keep going up.
Goldman Sachs remains cautiously optimistic about US stock market’s performance going into 2024.
How I See The Mag 7:
If I were to comment on Mag 7’s performances in 2024 right off their latest quarterly earnings, I would say — “I do not think they would be phenomenal in 2024”. (see below)
Above please find the Mag 7 stocks “consolidated” into one chart.
The 7 stock-price labels indicate the day when latest quarter earnings were announced.
As could be seen, Nvidia’s is the last to report its earnings.
Meta Platform & Microsoft have trended upwards significantly since earnings announcement.
Apple & Amazon have risen too but only ever so slightly.
Tesla has dipped below and may continue to face headwinds due to mr musk’s big mouth.
Google has dipped as well as analysts deemed its cloud services is not up to par when compared to its peers Amazon & Microsoft.
Nvidia peak above its $500 resistant level on the run up to its earnings results. Since then it began to dip when the #1 AI-chip maker forecast a weaker Q4 2023.
If I am right, Nvidia may continue to fall in the coming week. Click here! to find out more…. Like & re-post ok. Thanks.
After reading the above, agree that the Mag 7 don’t look that magnificent afterall.
Before we decry the end of the Mag 7, there remains a bigger picture to them.
Below please find my 3 compelling reasons on why Mag 7 remains a force to be reckoned with, well into 2024.
(1) They are all focused on secular technology growth trends such as:
Artificial intelligence.
Cloud computing.
Online gaming.
Cutting edge hardware & software.
These trends are expected to accelerate in the post-pandemic era as more people and businesses adopt digital solutions and innovations.
(2) They have (a) strong competitive advantages and (b) loyal customer bases that make them hard to displace or disrupt by smaller rivals or newcomers.
They also have (c) diversified revenue streams and (d) high margins that allow them to:
Invest in research and development.
Make acquisitions.
Expand into new markets and segments.
(3) They have demonstrated (a) resilience and (b) adaptability in the face of challenges:
Regulatory scrutiny.
Supply chain disruptions.
Labor shortages.
Inflation.
Rising interest rates.
At the same time, they have also benefited from favorable fiscal and monetary policies that have supported consumer spending and business investment.
Do you think the Mag 7 will continue to perform well in 2024?
Do you think there will be any headwinds facing the Mag 7 in the coming year?
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I don't buy big tech and semis at all time highs. I add to long term positions there when managers have rotated out and people are freaking out about them like last year or when forward valuation looks good. Forward valuation doesn't look good for the mag 7, so I wait and add to my retirement etfs as normal along with some side bets on out of favor sectors.
Well you don't know if the tech sector will suddenly take a hit. For example the dotcom. It took several years to recover.
The AI platforms leaders as I see it are: OpenAI, MSFT, GOOGL, AMZN, ADBE
Tesla revenue's will continue to plummet as will Elon's wealth.
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
I hope so! This prediction will make [Miser] [Miser] [Miser]
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Great article
Good article