Citi claims that because of its scale, Microsoft has a particularly significant impact on a more “idiosyncratic” market.
When it comes to big technology stocks, investors are becoming pickier. The wider market is affected by that.
In a letter to clients late Friday, Citi strategist and managing director Scott Chronert stated, “In essence, we argue that the days of the ‘Magnificent Seven’ as a tradeable cohort are mostly behind us.” “Instead, the markets are weighing in that the individual components of the group are increasingly trading on their idiosyncratic fundamental setups as related to AI and other company specific influences.”
The biggest technology stocks have a disproportionate influence on the SPX performance of the S&P 500, so even investors who are not particularly interested in the Big Tech trade should keep an eye on this trend. He pointed out that the Magnificent Seven together make up around 35% of the S&P 500 by weight, and that figure rises to roughly 38% when Broadcom Inc. (AVGO) is included.
Read: Big Tech stocks may benefit from this unexpected statistic.
Chronert examined the “Magnificent Seven” stocks’ varying performances thus far this year. The shares of Nvidia Corp. (NVDA) and Alphabet Inc. (GOOG) (GOOGL) have increased by 33% and 58%, respectively, making them shining spots. However, shares of Amazon.com Inc. (AMZN) and Meta Platforms Inc. (META) are only up, trailing the 12% advance of the S&P 500, while Tesla Inc.’s stock (TSLA) is down for the year.
Chronert also looked at estimates two years out, analyzing price-to-earnings-to-growth ratios for the Magnificent Seven stocks. With the obvious exception of Alphabet, which has benefited from a sharp change in investor mood, they are “lower in most cases than at the start of the year,” he continued. Chronert stated that “confidence in its structural positioning has improved.”
However, at less than 1x, he pointed out that Nvidia “easily” had the lowest price-to-earnings-to-growth ratio of the group. The tendency “speaks to the underlying lack of conviction in the longer-term sustainability of the current AI infrastructure spend cycle,” Chronert said.
What does this all signify, then, for investors in general? Chronert advises concentrating on the biggest of the huge, particularly since “the hyperscaler enigma of proving return on investor is likely to persist into 2026 and beyond.”
Since they account for roughly 20% of the market capitalization of the S&P 500, he predicted that Nvidia, Microsoft (MSFT), and Apple (AAPL) would “probably become the most important underlying bellwethers for the megacap growth trade from here.”
