The ‘Magnificent Seven’ stocks are actually undervalued vs. the rest of the market, JPMorgan, $JPM, has said

The ‘Magnificent Seven’ stocks are actually undervalued vs. the rest of the market, JPMorgan, $JPM, has said per MW.


In their analysis, JPMorgan's analysts pointed out that while the top tech companies, known as the Magnificent Seven, are currently trading at high absolute prices, they are actually trading at lower-than-average prices compared to the past five years. This is in contrast to the European cyclical sectors, which are experiencing stretched valuations.

The analysts, led by Mislav Matejka, highlighted that despite concerns about overvaluation and the potential end of the tech rally driven by artificial intelligence (AI), the Magnificent Seven - Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) - are trading below median levels for the past five years based on a 12-month forward profit-to-earnings ratio.

In contrast, European cyclical stocks are trading at higher-than-average prices compared to defensives based on a 12-month forward profit-to-earnings ratio since 1995.

According to JPMorgan's analysts, there could be further concentration in stock markets, which would benefit the Magnificent Seven, currently representing 28% of the S&P 500's market capitalization.

The analysts highlighted the strong earnings performance of the Magnificent Seven in 2023, with these tech giants achieving a net income growth of 27% compared to the -4% net income growth of the rest of the S&P 500.

They also noted a similar trend in European markets, where the 'Granolas' (Great New Leaders) account for a quarter of the Stoxx 600 market capitalization, indicating increasing market concentration in Europe as well.