The mega-cap technology stocks that have pushed US indexes to multiple all-time highs this year took some of the biggest losses in the August market sell-off, stoking speculation that the Magnificent Seven stocks are now beyond their peak.
Apple Inc., Tesla Inc., Alphabet Inc., NVIDIA Corp., Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc. lost a combined $1.319 trillion in market capitalization, or about 9%, from July 31 through Aug. 5 as the effects of the Federal Reserve not moving on interest rates, unemployment rising and the unwinding of the yen carry trade triggered a global meltdown in equities.
The Magnificent Seven — stocks which have carried the S&P 500 to many of its new highs over the past year — all saw steep declines in recent weeks, including NVIDIA, which fell nearly 26% on Aug. 5 from its all-time high on June 18. NVIDIA lost $407.21 billion in value from the end of July through Aug. 5, more than 14% of its total market cap.
"In an overall deleveraging, risk-off decline, the stocks that went up the most, are the most over-owned and the ones that have most positive sentiment are the ones that get hammered the most," said Paul Schatz, president of Heritage Capital.
The Magnificent Seven stocks have been largely responsible for the outsized rally in US equities. The S&P 500, for example, was up 18.1% as of July 10 compared with the end of 2023. The index was up only 9% if you removed the seven mega-cap stocks, according to S&P Global Market Intelligence data.
After the stock market decline early this month, the S&P 500 was up 8.7% on the year, or 5.3% without those seven stocks, the smallest gap since May.
From July 31 through Aug. 5, the overall S&P 500 fell 6.1%, or a narrower 5.2%, if you remove the seven mega-cap stocks.
The overall stock market fell for several reasons, including Fed policy, Bank of Japan rate hikes and a dimming view of the US economy. The Magnificent Seven stocks largely fell due to missed revenue targets and perceived over-investment in AI technologies, said Gary Brode, managing partner with Deep Knowledge Investing.
"These stocks were priced for perfection, and this quarter's earnings fell short of that at several of these companies," Brode said.
At the same time, these companies have invested tens of billions of dollars in AI, which has done little to bolster earnings, Brode said.
"While it could be a big business line for these companies in the future, right now, people are looking at massive [capital expenditures] combined with slowing growth and little in the way of AI-related revenue," Brode said.
All seven stocks were largely rebounding Aug. 6 as "mega-cap tech remains king" within the larger technology sector, said Tyler Richey, a co-editor with Sevens Report Research.
"The relative resilience by the Magnificent Seven suggests that investor demand for tech exposure remains concentrated in those seven mega-cap names … while the rest of the space is seeing some technical cracks emerge as bullish conviction for the rest of tech is starting to fade," said Richey.
Richey said he expects these mega-cap tech stocks to attempt to revisit their all-time high soon, as these stocks tend to be favored by portfolios looking for long exposure in the market at times of high cyclical risks.
"As long as the market is pricing in gradual rate cuts in the quarters ahead, optimism in support of the soft landing narrative would likely see mega-cap tech continue to lead the market as the Mag-7 names account for a significant amount of the expected S&P 500 earnings growth in the quarters ahead," Richey said.