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Magnificent 7 profits now exceed almost every country

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Deutsche Bank research shows that the “Magnificent 7” U.S. tech giants, including Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla, have significant financial power exceeding that of most major countries.

Concerns have been raised about the concentration of market power in these companies, with comparisons to historical market concentrations.

“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,” Deutsche Bank’s head of global economics Jim Reid said.

Despite the success of these companies, there are warnings about potential missed investment opportunities in other sectors beyond the tech giants.

The stock market returns heavily favor the Magnificent Seven, but signs suggest opportunities may broaden beyond these megacaps due to factors like the resilience of the U.S. economy and improving profit margins.

“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 said.

“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,” Evelyn Partners chief investment strategist Daniel Casali said.

“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.”

“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.”

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