Can Mega-Cap Tech's AI Boom Continue in 2H24?
After a blockbuster first-half rally driven by AI frenzy, the biggest question for investors is whether the market uptrend will continue for the rest of the year.
Just five mega-cap companies — NVIDIA NVDA, Microsoft, MSFT, Apple AAPL, Amazon (AMZN) and Meta META — accounted for almost 60% of the gains this year, per FT. AI darling NVIDIA alone drove about 31% of the advance.
Historically, a strong first half bodes well for stocks for the rest of the year. Trillions of dollars remain parked in money market funds and other cash equivalents. A portion of this capital could be deployed into stocks, potentially fueling further gains when the Federal Reserve pivots to rate cuts.
The investment in AI-related companies is still in its early stages. I believe AI presents a groundbreaking opportunity to significantly boost productivity across industries.
Furthermore, while the valuations of the Magnificent 7 stocks appear stretched compared to the rest of the S&P 500, they remain below their pandemic peak and pre-rate hike levels, according to SSGA research. This rally is attributed more to strong growth than to multiple expansions.
At the height of the dot-com frenzy, Cisco's CSCO shares were trading at roughly 130 times its forward earnings, whereas NVIDIA is trading at around 47 times.
Meanwhile, the earnings outlook continues to improve. For the Magnificent 7 stocks, Q2 earnings are expected to be up +25.5% on +13.2% higher revenues, according to Zacks Earnings Trends.
To learn about the Invesco NASDAQ 100 ETF QQQM, Vanguard Mega Cap Growth ETF MGK and Roundhill Magnificent Seven ETF MAGS, please watch the short video above.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports
Roundhill Magnificent Seven ETF (MAGS): ETF Research Reports
Invesco NASDAQ 100 ETF (QQQM): ETF Research Reports
Meta Platforms, Inc. (META) : Free Stock Analysis Report
