The Magnificent Seven: Time to Exit Before the Selling Escalates

The once-booming Magnificent Seven trade, comprising high-growth tech giants Meta, Amazon, Google, Apple, Nvidia, Microsoft, and Tesla, has lost its momentum in recent months. This has prompted experts to advise investors to reconsider their exposure to these stocks.

Reasons for the Sell-Off

The sell-off has been attributed to various factors, including:

* Declining sales (Tesla)
* Concerns over excessive spending on AI infrastructure (the rest of the Magnificent Seven)

Investment Thesis Evolves

According to Adam Parker, founder and CEO of Trivariate Research, the investment thesis for the Magnificent Seven has shifted. He advises investors to reduce their exposure due to three key reasons:

1. Scrutiny over AI Spending: The Street will continue to密切关注科技巨头在2025年和2026年的AI资本支出。仅今年，Meta、Microsoft、Amazon和Alphabet计划累计支出3250亿美元用于资本支出和投资。
2. Elevated Valuations: Despite the sell-off, the Magnificent Seven stocks remain at a premium to the rest of the S&P 500. The relative price-to-forward earnings multiple is at a 42% premium, approaching the upper end of its historical range.
3. Overownership: These stocks are heavily owned by investors, with their aggregate exposure accounting for almost a third of the market capitalization of the top 500 US equities (excluding the Magnificent Seven). Adjusted for beta, their exposure is even higher at 44.7%.

Bonus Reason:

A study by Yahoo Finance revealed an unusually high level of bullishness among analysts covering the Magnificent Seven. Only 4.8% of the 504 analyst recommendations are Sell ratings. This misalignment between the investment thesis and analyst sentiment could pose a risk to investors.

In light of these factors, investors are advised to consider reducing their exposure to the Magnificent Seven before the selling intensifies.