Amid the recent market selloff, technology stocks have been under pressure, sending the tech-heavy Nasdaq Composite Index 1.62% lower Friday to end at 16,175.09. With sharply dialed back expectations for Fed rate cuts, investors have been in risk-off mode on the heels of hotter-than-anticipated inflation metrics.
Some of the hardest-hit names have been the “Magnificent Seven” stocks. These mega-cap tech giants, consisting of Alphabet (GOOG , GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) had powered the Nasdaq’s 44% surge in 2023, driven by the seemingly insatiable appetite for AI-related themes. However, while their stocks are still up a considerable amount as a group over the past year, recent sentiment has fallen off quite a bit.
In that regard, something worth keeping in mind is that the Fed has reiterated its stance of monetary easing despite expectations of a hotter macro backdrop. So it’s likely another wave of risk-on trading could be on the way. While the recent declines are hard to stomach, it doesn’t fully change the trend or the long-term upward bias in stocks. For the Magnificent Seven, however, ahead of their first quarter earnings results, investors will want to know whether this recent dip is a buying opportunity or a sign of more ominous things to come.
In answering this question, let’s start with AI darlings Microsoft and Nvidia, which have been heavy money-makers for investors. Microsoft is up 12% year to date and 50% over the past year, while Nvidia has surged 78% year to date and 232% over the past year - both outperforming the S&P 500 index. However, at its current price of $881, NNDA stock is down close to 10% from its 52-week high, putting it in correction territory, while MSFT stock has given up 4% in thirty days.
Investors will want to know if both Nvidia and Microsoft can continue driving the AI-related resurgence the market has enjoyed over the past year. Meanwhile, Google (up 13% YTD and 51% in 12 months) which has launched Gemini, its latest large language model, has gone the opposite direction, rising 14% over the past month, including reaching a new 52-week high on Friday. The generative AI market is currently growing at 42% and could hit $1.3 trillion by 2032.
The market is seemingly betting on Google or Microsoft to seize a large chunk of the market. Currently sitting near a new 52-week high, Amazon (up 22% YTD) won’t be left out. After surging 81% in 2023, Amazon is positioning itself to be a dominant player in the market, expecting generative AI to produce tens of billions in revenue for Amazon Web Services.
For Meta Platforms (up 44% YTD), investors want to know how much better things can get. Can Meta's management continue to push all of the right buttons, including various cost optimization initiatives, many of which has placed the company in a much stronger financial standing?
Then, there is Tesla, which has underperformed its Magnificent Seven peers, falling 31% year to date and 5% over the past year. And since the electric vehicle maker reported its fourth quarter earnings on January 24, TSLA stock has given up as much as 22%, falling to a low of $160.
But ahead of its Q1 earnings results, the stock has become too cheap to ignore. An argument can be made that Tesla shares, which have fallen 34% in six months, and still some 40% below their 52-week high of $299, have reached oversold levels. While Tesla is going through a low point in its fundamentals, there are potential growth catalysts such as its Robotaxis and the continued buildout of the FSD platform, which should reaccelerate growth in the years ahead.
These questions, among others, will be revealed in the coming weeks. The market will be watching whether these tech powerhouses have earned their valuations and can lead again in 2024.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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