Nvidia’s (NASDAQ:NVDA) impressive earnings have capped off another strong reporting season for the “Magnificent 7” tech stocks, emphasizing their market dominance amid this year’s record-setting rally.
Nvidia reported a fivefold increase in revenue, surpassing $26 billion, and a significant surge in net income, reaching $15.24 billion for the first quarter. This report brings the combined net income of the Magnificent 7—Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Tesla (NASDAQ:TSLA)—to $108.9 billion for the first quarter. This marks a more than 50% increase from the same period last year, compared to the 5.5% earnings growth for the entire S&P 500, based on FactSet data.
JP Morgan strategists noted that, excluding the Magnificent 7, the remaining 493 S&P 500 constituents have shown negative year-on-year earnings growth for the fifth consecutive quarter.
The Magnificent 7 have driven more than half of the S&P 500’s year-to-date return, despite comprising only around 31% of the benchmark’s overall weight, according to Bank of America’s ‘Flow Show’ report. The bank described this trend as “monopolistic megatech monopolizes performance.”
Nvidia alone has contributed nearly a quarter of the S&P 500’s return with its 115% year-to-date advance, boosting its market value to around $2.55 trillion. The collective 24% rise of the Magnificent 7 this year has widened the gap between the S&P 500 and its equal-weighted counterpart.
The S&P 500, which has hit 24 record highs this year, is up 15.56% over the past six months, compared to a 12.1% gain for the S&P 500 Equal Weight Index. This divergence has been growing since early May, indicating that Big Tech strength, rather than broader earnings quality, is driving the bulk of the gains.
A separate Bank of America report, based on a survey of global fund managers, found that more than half of respondents consider “long Magnificent 7” stocks to be the market’s most-crowded trade. This sentiment outpaces concerns over “long US dollar” and “short China equities” positions.
Tech’s influence on the broader market is expected to persist into the summer and beyond. According to LSEG data, the communications services sector, which includes Google (NASDAQ:TSLA) and Meta (NASDAQ:META), and the information technology sector, which includes Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Nvidia (NASDAQ:NVDA), are projected to contribute just over half of the S&P 500’s $494.4 billion in second-quarter earnings.
Looking ahead, some analysts predict that the Magnificent 7’s dominance may wane in favor of broader fundamental improvements in other sectors. Jason Pride, Glenmede’s chief of investment strategy and research, noted that the Magnificent 7’s projected Q4 2024 earnings growth of 14% lags behind the rest of the index’s 17%, suggesting more growth opportunities beyond these market leaders.
Recent data supports this view, with sectors like energy, materials, and utilities outperforming tech and communications services over the past three months. This performance may also be linked to the anticipated surge in AI-related technologies.
Louis Navellier of Navellier Calculated Investing pointed out that companies supporting the expansion of electricity generation to meet growing demand from cloud computing and electric vehicles are thriving. He predicts that energy stocks will be the best performers in June, as the market responds to the end of the earnings season and looks for stocks posting strong earnings.
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