Why the Magnificent 7’s Dominance Isn’t Concerning

Roundhill’s Dave Mazza noted that the companies’ share price gains reflect their enormous earnings growth.

Can the Magnificent 7 keep surging? That was the question on investors’ minds as mega cap tech stocks hit record high after record high this week. 

On Thursday, shares of Nvidia briefly surged past $140, ballooning its market cap past $3.4 trillion.  

Apple and Microsoft, which Nvidia passed up earlier this week when it took the mantle as the world’s most valuable company, also traded close to all-time highs despite falling behind the AI chip juggernaut.  

Likewise, Meta, Amazon and Alphabet have all been doing well, with double digit gains across the board on a year-to-date basis. Among the Mag-7, only Tesla lags, with a 27% loss for the year.  

But are the enormous gains for this exclusive group of megacap stocks too much of a good thing? And might their outsized impact on the S&P 500 be a risk for the broader market? 

Dave Mazza, Chief Executive Officer at Roundhill Investments, the issuer behind the Roundhill Magnificent Seven ETF (MAGS) doesn’t seem to think so. 

Mag-7 Not Overvalued

When I spoke with Mazza for this week’s Exchange Traded Fridays podcast, Mazza said that the huge returns for the Mag-7 reflected the companies’ rapid earnings growth. 

He noted that he would be more concerned if the share price gains were disconnected from profits. 

“Some are saying that markets are overvalued today and if money keeps moving into a small number of firms…then that will be an issue,” Mazza said. 

But he doesn’t think it’s the case that the Mag-7 stocks are trading at radically overvalued levels, and in fact, investors are piling into these stocks is logical.  

“In a more restrictive rate environment, the largest companies are able to really outperform and navigate the uncertainty better,” he noted. 

Mazza had a lot more to say about the Magnificent 7, as well as other key market themes, like GLP-1 drugs, online gambling, bitcoin, and the metaverse, in this week’s podcast. Check it out if you want to hear more.