The Magnificent Seven of Tech have been the stock market stars of 2023, adding close to $4 trillion to their combined capitalisations.
Thanks largely to the dizzying ascent of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, the S&P 500 index has soared by 22 per cent.
For investors, the question is now, will these giant American corporations ride off into the sunset? Or will their shares continue to be buoyed by the artificial intelligence boom – and the willingness of companies to splash out on technological developments?
This outlay will be driven, even more than before, by fear of being left behind, as Mike Seidenberg, manager of the Allianz Technology Trust, says: ‘The experience of the past two decades is that you invest or you get ‘Amazoned’.’
That is disrupted and rendered irrelevant by competitors with superior systems, in the same way that Amazon undermined old-style retailers. Nevertheless, some investors will be wary about the outlook for tech, noting (spoiler alert) that only three of the protagonists in the Magnificent Seven movie survive to fight another day.
They will also point that these stocks appear overvalued, in light of the challenges they face.
Apple must cope with falling iPhone sales, while Tesla’s issues include collisions caused by its Autopilot system and the erratic demeanour of its boss Elon Musk.
Even Amazon has issues – slowing growth at AWS, its cloud computing arm.
It is reasonable, in particular, to be sceptical about Nvidia, the $1.2 trillion maker of the GPU (graphic processing unit) chips that power OpenAI’s ChatGPT. This system can write code, emails, essays and respond to questions. Nvidia’s shares – which have leapt by 233 per cent to $476 since January – are trading at 42 times next year’s earnings, against 24 times for the tech sector.
Amazon, Microsoft and others now threaten Nvidia’s dominance of the AI chip market which is forecast to be worth $400billion by 2027, according to Lisa Su who is the chief executive of another rival, Advanced Micro Devices .
Yet Jensen Huang, boss of Nvidia, contends that AI will be ‘fairly competitive’ with humans by about 2028, suggesting that the sector could be even more valuable in four years time. This hugely unnerving prediction of seismic change to every aspect of our lives probably helps explain why analysts are still targeting an average price of $651 for Nvidia.
As soon as you can recover from the dystopian dread, the forecast should also be a spur to take a look at your portfolio. You can establish your exposure to the Magnificent Seven, either directly or through funds, like Alliance, F&C and Witan. It is also worth establishing the extent of your wider exposure to technology, amid a conviction that the tech rally may have further to run.
Citigroup strategists expect another 11 per cent increase in the S&P 500 next year.
Dan Ives, analyst at the brokers Wedbush, is forecasting that spending not only on AI but also cloud computing infrastructure will rise by 20 per cent-25 per cent in 2024.
Ives says that among the beneficiaries will be some less known names such as Palantir, the software specialist, and the cyber security groups CrowdStrike, Palo Alto and Zscaler.
Seidenberg cites the software business Cadence and the chip design software maker Synopsys.
There is always a case for reassessing your investments which means that I am hoping to take a bet on tech, while also gambling on the narrowing of the discounts on investment trusts. A trust is at a discount when its share price is lower than its NAV (net asset value). I already have money in Allianz Technology, F&C and Scottish Mortgage, where the discount has narrowed to 11.5 per cent.
This controversial trust owns Amazon and Tesla, but also has stakes in the private companies that may – or may not – be the success stories of tomorrow. It is highly risky for this reason. Its stablemate trust, Baillie Gifford US Growth, where the largest holding is digital ad business The Trade Desk, is at a 16.42 discount.
Meanwhile, Polar Capital Technology, which has been repositioned to take advantage of AI innovation, stands at a 13 per cent discount.
Nobody, not even Silicon Valley’s brightest, can know how technology will re-shape our futures.
But getting part of your portfolio into shape should, at least, help you be more resilient.
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