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LivestreamMenuIt could be time to give the “Magnificent Seven” another look. The tech megacaps have had a rough year, as investors redeployed proceeds into semiconductor companies that are the clearest beneficiaries of the artificial intelligence buildout, as opposed to the companies paying for it. Memory stocks have surged year to date, as have South Korea stocks. The iShares Semiconductor ETF (SOXX) has rallied roughly 85% year to date. By comparison, the Roundhill Magnificent Seven ETF (MAGS) is down slightly year to date, while the S & P 500 is higher by nearly 9%, as the megacaps started issuing debt to pay for their AI race — with growing skepticism about the return on investment. But by one measure, at least, the megacaps are starting to look like bargains. According to Morgan Stanley Wealth Management’s Global Investment Committee, the valuation premium for the Magnificent Seven over the other 493 S & P 500 stocks is now at 10%, the lowest in over a decade. At the same time, the firm noted that the overall group still boasts a 45% annual earnings growth advantage. “By comparison, we believe hyperscalers look downright cheap,” Lisa Shalett, head of the global investment office at Morgan Stanley Wealth Management, wrote on Tuesday. Given this, the investment chief said that she would fade her exposure to semiconductor stocks, and selectively wade back into those Magnificent Seven companies that are especially likely to come out on top in the AI race. She added that a burgeoning shift away from “tokenmaxxing” suggests that hybrid designs for AI workflows could benefit hyperscalers such as Alphabet , Amazon and Microsoft . “Tokenmaxxing” measures AI adoption by the number of tokens consumed by companies, but its high cost and energy usage has made it less desirable for businesses. “We see opportunities for some Mag-7 constituents,” Shalett wrote, adding, “We are stock-pickers within the group, focusing on those with dynamic design approaches and custom ASIC racks linked to dominant cloud service businesses.” A look at the historical valuations across the Magnificent Seven companies show just how attractive some of them have become. Nvidia, for example, has a next 12-month current P/E of 18.7, when its historical P/E has been 36.9. Nvidia was reiterated as a buy by Bank of America Securities this week. On Tuesday, the firm’s Vivek Arya said that he would buy the dip in the stock as the company’s pricing power is underappreciated. “We strongly disagree with the EPS discount and see as an enhanced Buy opp’ty for a unique, durable growth franchise now trading at a 7-yr low 18x forward PE,” he wrote. — CNBC’s Chris Hayes contributed to this report.Read More
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