MW A veteran investor is kicking Tesla out of the 'Magnificent Seven' - replacing it with this tech giant
By Michael Brush
T. Rowe Price fund manager David Giroux says Big Tech isn't in a bubble, but there's value in healthcare and utilities
Some tech stocks look way too expensive, investor David Giroux says, but not most of the "Magnificent Seven."
This sure is a tricky time to navigate the stock market. For guidance, I recently turned to veteran investor David Giroux, who has managed the T. Rowe Price Capital Appreciation Fund PRWCX for two decades through all kinds of market conditions. Giroux's fund has outperformed its Morningstar category by two to three percentage points annualized over the past 15 years; the portfolio now has about $114 billion under management.
Giroux's mutual fund is closed to new investors. But you can still get exposure to his stock ideas via the T. Rowe Price Capital Appreciation Equity ETF TCAF. This is a pure stock fund, unlike its mutual-fund sibling's more balanced stock-bond mix.
Here are five takeaways from an interview with Giroux, covering key investor topics ranging from whether tech is in bubble, to stocks to avoid because they look way too pricey, and the sectors and stocks to favor instead.
1. 'Magnificent Seven' stocks are not in a bubble: Many market commentators are hyperventilating about tech stocks being a bubble. Giroux just doesn't buy it. "It's not 1999," he says, referencing the top of the dot-com frenzy. "There is craziness, but it is not necessarily in the largest tech companies."
What Giroux calls the "real Magnificent Seven" stocks do not look expensive to him. His version of the group kicks out Tesla $(TSLA)$, which Giroux says is overvalued, in favor of Broadcom $(AVGO)$.
For Giroux's "Magnificant Seven," earnings growth has been so robust that valuations do not look excessive, he says. There's no serious disconnect showing up between these companies' earnings and their market valuation. The traditional "Magnificent Seven" - including Amazon.com (AMZN) , Microsoft $(MSFT)$, Meta Platforms (META), Alphabet $(GOOGL)$ $(GOOG)$, Apple $(AAPL)$ and Nvidia (NVDA) - plus Broadcom were all top-10 holdings in the mutual fund as of the end of April, and in the ETF as of June 15.
2. Some tech stocks look way too expensive: Here, Giroux singles out Micron Technology $(MU)$ and Western Digital $(WDC)$, which trade at super-rich valuations compared to their histories. Micron and Western Digital both recently traded at 80%-100% or greater premiums to their average trailing five-year P/E and price-to-sales ratios, according to LSEG.
Giroux says he can't justify that valuation for two companies that typically produce single-digit returns on invested capital $(ROIC)$. Micron Technology and Western Digital had median ROICs of 7.96 and 1.26 respectively, from 2014 to 2024, according to FactSet. Recently they have been posting ROICs in the 300%-400% range.
"The market is pricing in very positive outcomes," Giroux says. "I don't believe an industry that has historically generated high-single-digit ROIC can sustain 300% to 400% ROIC." He adds: "The question is, how long before ROIC returns to normal? The risk-reward is skewed to the negative, especially considering the big moves these stocks have had."
He is also cautious about valuation excesses at Marvell Technology $(MRVL)$ and Caterpillar $(CAT)$, driven by AI-related enthusiasm. Marvell makes customized chips used in AI models, and Caterpillar sells generators to data-center operators. Both stocks recently traded at greater than 100% premiums to their average trailing five-year price-to-sales ratios, according to LSEG. Again, the rich valuations don't make sense to Giroux. "We are getting to an extreme situation here given the moves in some memory and hardware companies."
3. Healthcare 'picks and shovels' are attractive: While AI stocks grab the spotlight, investors have largely ignored healthcare stocks, which Giroux says look cheap relative to their expected five-year growth rates.
Says Giroux: "People don't want to own healthcare when AI stocks are going up 10% a day. Healthcare probably has the biggest disconnect in the market in terms of earning growth and the multiples investors are paying."
He singles out manufacturers of the equipment and compounds used in drug production and research, including Waters $(WAT)$, Danaher $(DHR)$, Revvity $(RVTY)$ and Becton Dickinson $(BDX)$.
Besides their relatively cheap valuations, these stocks offer a hedge against AI-sector trouble. Healthcare stocks are defensive and typically perform relatively well when tech stocks get hit. "In the past, when technology goes down, healthcare goes up," Giroux says.
4. Biotech takeover targets can pay off: Over the next 10 years, about $500 billion worth of branded drugs will become generic, Giroux says. "That will be a giant headwind for big pharma companies. It will be hard for them to replace those revenue streams through organic research and development." Instead, he says, they will have to buy smaller, emerging biotech drug-development companies.
Giroux's portfolio holds positions in some small- to midcap biotech companies he belives have a high likelihood of being acquired. Most of these companies have market caps currently in the $2 billion to $12 billion range. As examples, Giroux points to Ascendis Pharma $(ASND)$, Cytokinetics (CYTK), CG Oncology (CGON) and Vaxcyte $(PCVX)$.
5. Utilities are strong AI plays: The days of slow-growth utilities are over. "They are no longer your father's utilities," Giroux says. Many utilities now have annual earnings growth rates in the 9%-10% range, thanks to AI-related data-center power demand. They also have earnings growth visibility out 10 years or more due to long-term power contracts with top companies.
The key with utility stocks is to avoid those with fire risk in areas like California. It's also better to steer clear of utilities in the Southeastern U.S., where regulators have been generous on allowable rate increases. There might be pushback on those rate hikes at some point. The most attractive utilities operate in U.S. states with big data-center rollouts, including Texas, Indiana, Georgia, Pennsylvania and Kentucky.
Stocks on Giroux's list fitting this theme include NiSource $(NI)$, CenterPoint Energy $(CNP)$, Ameren $(AEE)$ and PPL $(PPL)$. Like healthcare stocks, utilities offer downside protection in the event of a geopolitical shock or AI-stock meltdown.
Says Giroux: "Utilities are a great way to play the AI boom without taking a tremendous amount of risk."
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned TSLA, AVGO, AAPL, MSFT, GOOGL, AMZN, META, NVDA, MU and ASND. Brush has suggested TSLA, AVGO, AAPL, MSFT, GOOGL, AMZN, META, NVDA, MU and ASND in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks
-Michael Brush
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June 16, 2026 07:50 ET (11:50 GMT)
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