‘Magnificent Seven’ sell-off ahead of big week for big tech
Big tech share prices were dented by a sector-wide sell-off of risky assets last week, ahead of a momentous few days of earnings results at four of the so-called ‘Magnificent Seven’ companies.
The Magnificent Seven is used to describe a group of high-performing tech stocks: Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla.
Shares in Nvidia, the AI chipmaker whose value has trebled in the past year, dropped by over 10 per cent on Friday (19 April), the equivalent of over $200bn.
The falls contributed to what was the worst run-on Wall Street since October 2022, as investors flocked away from “hot” tech stocks towards so-called “safe haven” investments like gold and government bonds.
The sell-off comes ahead of a highly consequential week of earnings for the Magnificent Seven and the tech sector more generally, with Microsoft, Tesla, Alphabet and Meta all reporting their results for the first quarter this week. Nvidia’s results for the same period are due in late May, with Apple due in early May.
Last year the Magnificent Seven stocks climbed 76 per cent and are now trading at an average of 50x earnings, a much higher ratio than most stocks on the S&P 500.
The firms’ previous success is being cited as one of the reasons behind the sell-off, with investors concerned that an anticipated slow-down in earnings in this week’s results will look particularly stark given their prior success.
This is combined with the fact markets have started to think it likely that the Federal Reserve, the US’s central bank, will make just one 0.25 per cent cut to the interest rate before the end of the year; a vast decrease on four rate cuts that some investors were factoring in at the start of 2024.
The ratcheting up of tensions the Middle East, though slightly mollified over the weekend, has also done little to calm tetchy investors watching on.
Analysts at UBS expect the ‘Big 6’, which constitutes all the Magnificent Seven stocks bar Tesla and Nvidia, to see year-on-year earnings per share growth to be down from a peak of nearly 70 per cent in Q4 last year, to 42.1 per cent in Q1 2024.