$Apple(AAPL)$ European cyclical stocks are overvalued, analysts say
Investors' concerns that the Magnificent Seven bubble may soon be about to burst could be completely unfounded, according to new analysis from JPMorgan, which argues the top-performing tech stocks are actually undervalued compared to rival stocks.
In a note, JPMorgan's analysts said that while the Magnificent Seven are currently trading at high prices in absolute terms, the top-performing tech companies are in fact trading at lower than average prices compared to the past five years.
Instead, the analysts led by Mislav Matejka, said valuations are most stretched in the European cyclical sectors, despite widespread concerns that the Magnificent Seven are overvalued and that the AI fueled tech rally could soon come to an abrupt end.
In comparison to the rest of the S&P 500, the Magnificent Seven tech companies -- Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) -- are trading at below median levels for the past five years, on a 12-month forward profit-to-earnings basis, the note says.
JPMorgan's analysts said stocks in European cyclicals are, meanwhile, trading at higher-than-average prices versus defensives on a 12-month forward, profit-to-earnings basis, compared to the period starting in 1995.
In the view of JPMorgan's analysts, stock markets could now become even more concentrated, in movements that would further boost the Magnificent Seven stocks that currently account for 28% of the market capitalization of the entire S&P 500.
The analysts noted the Magnificent Seven achieved "clear earnings outperformance" in 2023, that saw the top seven tech companies achieve net income growth of 27% versus the -4% net income growth achieved by the rest of the S&P 500.
They also noted that European markets are also becoming increasingly concentrated, in a shift that has come to see Europe's 'Granolas' account for a quarter of Stoxx 600 market capitalization.
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