Mega-cap technology stocks ascended to the throne again in 2023 after a debilitating 2022 left some investors sour on the industry's prospects. At the end of 2022, the road ahead looked bleak. The Federal Reserve seemed poised to continue its aggressive rate-hiking cycle, and inflation remained high. Metaplatforms plunged toward a 64% drop over the year, while Tesla plummeted 65%. Nvidia and Amazon fell about 50% each. Many expected the downward spiral to continue in the once-beloved retailers โ Apple, Alphabet, Amazon, Microsoft, Meta Platforms, Nvidia and Tesla โ now known as the Magnificent 7, replacing the popular FAANG acronym coined about a decade ago. A year later, the giants seemed to have proven the world wrong. Each stock gained at least 49% individually, with Tesla shares more than doubling. Nvidia was up a whopping 234%, while Meta nearly tripled. Together, the group contributed a large portion of the S&P 500's annual gain, while accounting for more than a quarter of its weighting. "Given the history, given the space, these are still the best in class and I expect them to do well," said Jay Woods, chief global strategist at Freedom Capital Markets. "Will all seven do well? No, I think there will be stumbles. Stocks will really have to show what the next big thing will be." Even after a spectacular year, driven in part by enthusiasm for artificial intelligence, the investment community has not lost hope in the group's trajectory. While these stocks may not match the once-unfathomable gains of 2023, if the economy and conditions continue to perform well, many are predicting another catalyst-driven year for most of the group. Who wins in 2024? Amazon shares soared 83% in 2023 after losing half their value in 2022. Even as it outperformed the market, the e-commerce giant's profits were dwarfed by other large mega-caps boasting their latest innovations in intelligence. artificial intelligence, and some fear that Amazon is falling behind in artificial intelligence. technology . According to Freedom Capital's Woods, that's a misconception. He noted that Amazon continually uses technology to target consumers online. Later this year, the company also launched its own AI chips to allow AWS customers to build and run applications. AMZN YTD Amazon Stock Mountain in 2023 Woods also said investors aren't giving the company enough credit for alternative revenue streams, such as its recently announced Amazon Fresh unlimited grocery delivery service that could pose serious competition to its rivals DoorDash and Uber Eats. Aggressive investment in new products and services for customers should also position Amazon, along with Alphabet, for an attractive 2024, said Dan Flax of Neuberger Berman. While Alphabet made headlines earlier this year with its ChatGPT chatbot competitor known as Bard, some early missteps earned it a reputation for falling behind on the AI โโfront. Many investors expect the company to regain its dominance in 2024 as it rolls out new capabilities and its latest major language model known as Gemini. The tool should boost engagement for its search business, according to Deepwater Asset Management's Gene Munster. GOOGL YTD mountain Alphabet's performance in 2023 Meanwhile, veteran Microsoft bull Ken Mahoney is hedging his bets on the software giant in 2024, given the scope of the "cash cow" verticals he operates. Apple may be a close second thanks to its range of consumer-oriented apps and services and its strength in gaming, the president of Mahoney Asset Management said. Is it time to diversify? Not everyone considers that betting on the Magnificent 7 in the new year is a strategy to win the market. "The idea that there are only seven growth opportunities in the entire global stock market is categorically wrong and our portfolios fully encompass the wide range of attractive investments that investors seem to ignore," Richard Bernstein Advisors said in a note. While year-to-date data shows increasing market breadth, it also shows a tightness that suggests the recent rally has been driven more by speculation than fundamentals, the firm added. The data also shows that the share of S&P 500 stocks outperforming the index is at the lowest level since the tech bubble. META YTD Mountain Meta Platforms Stock This Year Given this setup, the firm wouldn't be surprised by a period of underperformance for Magnificent 7 stocks and highlighted small caps, emerging markets and US industrials among the issues to play in 2024. Brandes Investment Partners' Brent Fredberg expects Mag 7 names to continue soaring in 2024, but sees smaller names left behind in 2023's mega-cap-driven rally as potential candidates for a superior performance. He pointed to companies involved in DRAM memory, such as Micron Technology, as an example. Semiconductor companies Intel, Broadcom and Lam Research also look attractive even if Mag 7 stock maintains its leadership position as AI proliferates, Woods said. "It's a story that's just starting to develop and we're going to develop it in the future," he said.
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The Magnificent Seven stocks led 2023โs market. Hereโs what the pros expect for 2024