Magnificent 7 profits now exceed almost every country in the world. Should we be worried?

The
so-called
“Magnificent
7”
now
wields
greater
financial
might
than
almost
every
other
major
country
in
the
world,
according
to
new
Deutsche
Bank
research.

The
meteoric
rise
in
the
profits
and
market
capitalizations
of
the
Magnificent
7
U.S.
tech
behemoths
—


Apple,


Amazon,


Alphabet,


Meta,


Microsoft,


Nvidia
and


Tesla
—
outstrip
those
of
all
listed
companies
in
almost
every
G20
country,
the
bank
said
in
a
research
note
Tuesday.
Of
the
non-U.S.
G20
countries,
only
China
and
Japan
(and
the
latter,
only
just)
have
greater
profits
when
their
listed
companies
are
combined.

Deutsche
Bank
analysts
highlighted
that
the
Magnificent
7’s
combined
market
cap
alone
would
make
it
the
second-largest
country
stock
exchange
in
the
world,
double
that
of
Japan
in
fourth.
Microsoft
and
Apple,
individually,
have
similar
market
caps
to
all
combined
listed
companies
in
each
of
France,
Saudi
Arabia
and
the
U.K,
they
added.

However,
this
level
of
concentration
has
led
some
analysts
to
voice
concerns
over
related
risks
in
the
U.S.
and
global
stock
market.

Jim
Reid,
Deutsche
Bank’s
head
of
global
economics
and
thematic
research,
cautioned
in
a
follow-up
note
last
week
that
the
U.S.
stock
market
is
“rivalling
2000
and
1929
in
terms
of
being
its
most
concentrated
in
history.”

Deutsche
analyzed
the
trajectories
of
all
36
companies
that
have
been
in
the
top
five
most
valuable
in
the
S&P
500
since
the
mid-1960s.

Reid
noted
that
while
big
companies
eventually
tended
to
drop
out
of
the
top
five
as
investment
trends
and
profit
outlooks
evolved,
20
of
the
36
that
have
populated
that
upper
bracket
are
still
in
the
top
50
today.

“Of
the
Mag
7
in
the
current
top
5,
Microsoft
has
been
there
for
all
but
4
months
since
1997.
Apple
ever
present
since
December
2009,
Alphabet
for
all
but
two
months
since
August
2012
and
Amazon
since
January
2017.
The
newest
entrant
has
been
Nvidia
which
has
been
there
since
H1
last
year,”
he
said.

Tesla
had
a
run
of
13
months
in
the
top
five
most
valuable
companies
in
2021/22
but
is
now
down
to
10th,
with
the
share
price
having
fallen
by
around
20%
since
the
start
of
2024.
By
contrast,
Nvidia’s
stock
has
continued
to
surge,
adding
almost
47%
since
the
turn
of
the
year.

“So,
at
the
edges
the
Mag
7
have
some
volatility
around
the
position
of
its
members,
and
you
can
question
their
overall
valuations,
but
the
core
of
the
group
have
been
the
largest
and
most
successful
companies
in
the
US
and
with
it
the
world
for
many
years
now,”
Reid
added.

Could
the
gains
broaden
out?

Despite
a
muted
global
economic
outlook
at
the
start
of
2023,
stock
market
returns
on
Wall
Street
were
impressive,
but
heavily
concentrated
among
the
Magnificent
Seven,
which
benefitted
strongly
from
the
AI
hype
and
rate
cut
expectations.

In
a
research
note
last
week,
wealth
manager
Evelyn
Partners
highlighted
that
the
Magnificent
7
returned
an
incredible
107%
over
2023,
far
outpacing
the
broader
MSCI
USA
index,
which
delivered
a
still
healthy
but
relatively
paltry
27%
to
investors.

Daniel
Casali,
chief
investment
strategist
at
Evelyn
Partners,
suggested
that
signs
are
emerging
that
opportunities
in
U.S.
stocks
could
broaden
out
beyond
the
7
megacaps
this
year
for
two
reasons,
the
first
of
which
is
the
resilience
of
the
U.S.
economy.

“Despite
rising
interest
rates,
company
sales
and
earnings
have
been
resilient.
This
can
be
attributed
to
businesses
being
more
disciplined
on
managing
their
costs
and
households
having
higher
levels
of
savings
built
up
during
the
pandemic.
In
addition,
the
U.S.
labour
market
is
healthy
with
nearly
three
million
jobs
added
during
2023,”
Casali
said.

The
second
factor
is
improving
margins,
which
Casali
said
indicates
that
companies
have
adeptly
raised
prices
and
passed
the
impact
of
higher
inflation
onto
customers.

“Although
wages
have
risen,
they
haven’t
kept
pace
with
those
price
rises,
leading
to
a
decline
in
employment
costs
as
a
proportion
of
the
price
of
goods
and
services,”
Casali
said.

“Factors,
including
China
joining
the
World
Trade
Organisation
and
technological
advances,
have
enabled
an
increased
supply
of
labour
and
accessibility
to
overseas
job
markets.
This
has
contributed
to
improving
profit
margins,
supporting
earnings
growth.
We
see
this
trend
continuing.”

When
the
market
is
so
heavily
weighted
toward
a
small
number
of
stocks
and
one
particular
theme
—
notably
AI
—
there
is
a
risk
of
missed
investment
opportunities,
Casali
said.

Many
of
the
493
other
S&P
500
stocks
have
struggled
over
the
past
year,
but
he
suggested
that
some
could
start
to
participate
in
the
rally
if
the
two
aforementioned
factors
continue
to
fuel
the
economy.

“Given
AI-led
stocks’
stellar
performance
in
2023
and
the
beginning
of
this
year,
investors
may
feel
inclined
to
continue
to
back
them,”
he
said.

“But,
if
the
rally
starts
to
widen,
investors
could
miss
out
on
other
opportunities
beyond
the
Magnificent
Seven
stocks.”