(Bloomberg) – In recent market selling, large tech companies have fallen from their high level. However, many traders bet that the decline might be further down, and recent history provides evidence to support them.
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The prices investors are paying for expected revenue from the so-called seven grand companies have reached its lowest level since September this week. However, these ratings are far from the lows reached in 2018 and 2022 when the tech giants’ profits were under pressure, and now there are more factors that cloud the horizon.
“We acknowledge that the rating looks much better than December, but I don’t think this is at the bottom,” said Violeta Todorova, senior research analyst at Leveraged Equities. “I’d like to buy this dip, but there’s still a lot of uncertainty and I think things will get worse before they get better.”
With the sell-off, Bloomberg Index tracked Magnificent Seven, Apple Seven, Microsoft Corp., Nvidia Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc. We have plenty of space left before reaching levels that marked the 2018 and 2022 lowest levels, before we can make our revenue forecasts about 19 times.
Despite Friday’s rally, the tech-heavy Nasdaq 100 stock index fell 2.5% a week, down 11% from its record high in February. Apple Inc., the largest component of the index, has experienced its biggest weekly decline in over two years.
This represents an amazing aspect. Just a month ago, tech giants like Alphabet Inc. and Amazon.com Inc. were creating new highs as investors piled up on stocks based on expectations that Trump administration policies would trigger economic growth and provide regulatory bailouts. These assumptions are in tatters as Trump and other officials reveal they are content with stock market losses and short-term economic pain pursuing long-term ambitions to dramatically rebuild the US economy.
In response, investors have withdrawn from risky assets and benefited from holdings of the High-Tech Giants, the much-largest recipient of the US stock bull market, which began in October 2022.
Over the past decade, investors have been taught many times to reward them brilliantly to buy big tech stocks when they’re down. Even the prolonged slump, which dropped the Nasdaq 100 by 33% in 2022, proved to be a major buying opportunity as hit stocks like Metaplatform surged to new heights two years later.
There is an almost universal belief that the tech giant remains the highest quality company in the world thanks to market domination, immeasurable profitability and the balance sheet packing cash. The question is whether these benefits have already been burned into stock prices, and if a massive bet on artificial intelligence doesn’t pay off as expected, it could now be under threat.
Since closing in a record 17 trading sessions, the Nasdaq 100 has bounced back in six days. But so far, none of them have been going on for a long time.
Art Hogan, chief market strategist at B. Riley Wells, said: “There’s so much uncertainty, so we didn’t have a durable bouncing.”
Wall Street analysts recently trimmed the epic Seven’s 2025 estimate despite averaged better revenue growth than expected in the fourth quarter. Data compiled by Bloomberg Intelligence shows that the cohort is projected to increase by 22% from its 24% forecast in mid-January. In 2024, the group recorded a revenue growth rate of 34%. In contrast, overall S&P 500 profits are projected to rise 12% this year from 10% last year.
When it comes to the magnificent seven, each has a different profile. Tesla, for example, has always been an outlier. It has the narrowest profit margins and highest ratings thanks to the cult-like support of CEO Elon Musk. Even after a 48% decline over the past three months, the stock is still priced at a predicted 82x profit.
Apple, the second most expensive in the group, is currently trading at a more modest 29x advance profit. The cheapest is the alphabet, which is a multiple of 18. However, the alphabet is also far above the lows that hit in 2022.
The rest of the bulls have a positive argument with them. The 14-day relative strength index for the Bloomberg MAG 7 index – a measure of momentum rather than rating – is recently below 24, the lowest since 2019, below 30, suggesting an overstatement. Since it rebounded to 36, it remains well below the 70 level indicating acquired security.
For Todorova, the basic reason for preferring large-scale tech stocks remains intact despite the sale, and it’s only a matter of time before investors return to the group.
“This is really less about their foundations, it’s about macros and geopolitical drawings,” Todorova said. “We’ll be more clear about the Fed’s plans, what growth will look like over the coming months. I think Big Tech will be able to perform again as the market begins to recover.”
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