Magnificent Seven Stocks Headed for a bubble or boom?

Irrational exuberance, fear of missing out, high capital spending among warning signs

- Angela Tan

Rocketing share prices of tech giants carving out lucrative space in areas like artificial intelligence (AI) and cloud services have made many investors richer, including those in Singapore, but how long the gravy train keeps running is anyone's guess.

Many of the so-called Magnificent Seven - Nvidia, Microsoft, Meta Platforms, Alphabet, Tesla, Apple and Amazon.com - have seen stocks hit record highs, driven in large part by new opportunities for AI.

Take chipmaker Nvidia. Its shares gained around 170 per cent in 2024 while Meta, which has also bet heavily on AI, rose more than 60 per cent.

These seven stocks were responsible for pushing the S&P 500 above the 6,000 level towards the end of 2024, and now make up more than a third of the index.

But some market watchers fear the party will soon end after two years of a jaw-dropping rally.

BEARS

Bank of America warns of potentially dangerous bubbles forming, specifically in the tech-heavy Nasdaq. It fears the rally may be due for a dramatic "unwinding", with the tech giants leading the fall.

Billionaire Howard Marks, 78, warned of signs of a bubble in his latest investor memo, urging investors to not ignore the high market valuation.

"The cautionary signs today include the optimism that has prevailed in the markets since late 2022, the enthusiasm that is being applied to the new thing of AI, and the widespread presumption that the top seven companies will continue to be a success," said Mr Marks, co-founder and co-chairman of Oaktree Capital Management, which manages around US$205 billion (S$281 billion) in assets.

A bubble, he says, not only reflects a rapid rise in stock prices, but it is also a temporary mania resulting from highly irrational exuberance, outright adoration of companies, massive fear of missing out and conviction that for these stocks there's no price too high.

BULLS