Mega-cap tech stocks have consistently outperformed the S&P 500 over the past two years, driven by impressive earnings growth.
Earnings Growth Comparison
The "Magnificent Seven" — Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla — showcased a remarkable 36% earnings growth in 2023, significantly outpacing the broader S&P 500, which experienced a 4% decline in earnings. This outperformance underscores the dominance of mega-cap tech in driving stock market gains.
Goldman Sachs' Insights
Goldman Sachs highlighted this trend with a striking chart showing the trailing 12-month earnings per share of the Magnificent Seven compared to the S&P 500. The chart reinforces the fundamental principle that long-term stock prices are driven by profits.
Since the launch of the Roundhill Magnificent Seven ETF in April 2023, the fund has returned 129%, more than doubling the S&P 500's 48% return over the same period.
According to Peter Oppenheimer, a strategist at Goldman Sachs, the impressive performance of these tech giants is rooted in strong fundamental growth rather than market speculation.
Future Earnings Projections
The Magnificent Seven are projected to continue their earnings growth trajectory, albeit at a slower pace:
In 2024, these companies are expected to grow earnings by 33%, compared to a modest 3% growth for the rest of the S&P 500.
Projections for 2025 and 2026 show an anticipated earnings growth of 18% and 16% for the Magnificent Seven, respectively, versus 11% and 13% for the broader S&P 500.
The Role of AI in Earnings Growth
The AI revolution has been a key driver of this earnings surge, particularly for Nvidia. The company's trailing 12-month net income has skyrocketed from approximately $6 billion pre-AI boom to over $60 billion currently. This dramatic increase underscores the transformative impact of AI technologies on corporate earnings.
Veteran Trader Focuses on Nvidia
Wall Street veteran trader Stephen Guilfoyle recently emphasized Nvidia's growth potential following major deals with Toyota Motor and Uber Technologies. Guilfoyle highlighted Nvidia's collaborations, including the use of its Orin chips and automotive operating system in Toyota's advanced driver assistance systems.
Conclusion
The continued dominance of mega-cap tech stocks, fueled by robust earnings growth and strategic advancements in AI, positions them as key drivers of the stock market. While the growth gap between these tech giants and the broader market is expected to narrow, the Magnificent Seven remain at the forefront of market performance, bolstered by innovation and strong fundamentals.
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