A win-win at any odds: why an analyst is betting on the Magnificent 7 in the Iran crisis

Shares of the "Magnificent Seven" companies - Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia and Tesla - have gone from laggards to a win-win investment in the second month of the war in Iran, according to Garrett Melson, strategist at Natixis Investment Managers Solutions. The Middle East crisis proved that demand for cloud services and artificial intelligence is virtually independent of geopolitics.

Right now, tech giants' stocks are operating on the principle of "heads-I won, tails-I won too," Melson said. The reason is that strong corporate reporting from the bigtechs this week should encourage investors. This will keep optimism on Wall Street alive even if the U.S. economy starts showing clear signs of weakening, he explained.

The papers of IT corporations, especially from the "Magnificent Seven", are now in a rare and extremely favorable position, states MarketWatch. The Roundhill Magnificent Seven exchange-traded fund, which mimics the price movements of a basket of securities of seven major U.S. technology companies, has gained nearly 15% since the beginning of April after two months of decline.

Amid the vulnerability of other sectors to the consequences of the war in Iran, it was Bigtech with its bet on artificial intelligence that acted as a "safe haven" for global investors and brought the U.S. stock market back to record highs, states MarketWatch. Relative cheapness also contributed to the April growth of quotations: at the end of March, the P/E multiplier (shows the ratio of the market value of a share to the profit earned per share) of the securities of the "Magnificent Seven" was at a minimum for almost a year, the edition notes.

Kevin Shea, Director and Senior Equity Strategist at BNY Wealth, noted the attractiveness of bigtech valuations in the face of uncertainty and strong AI fundamentals. He emphasized that demand for cloud services remains consistently strong. According to Shea, the main growth drivers for tech giants are "long-term rather than macro-economy-dependent," making the Magnificent Seven a fairly reliable safe haven asset in times of geopolitical turmoil.

Matt Weller, head of market research at StoneX, pointed out to clients that the main trend for this reporting season in the technology sector will be a shift in focus. According to him, the focus will shift from the fact of capital investments in AI and data centers to the return on those investments.

On April 29, Alphabet, Microsoft, Amazon and Meta Platforms will disclose their quarterly reports, and on April 30, market participants will evaluate the financial results of Apple Corporation. Their reports will show whether the current rally is backed by real numbers or is just a temporary illusion of stability in a turbulent year, MarketWatch notes.

Consensus ratings of the five member companies of the "Magnificent Seven", which will report earnings in the middle of this week, reflect the optimism of analysts from Wall Street: for Alphabet, Microsoft, Amazon and Meta - "buy" (Buy), and for Apple - "above market" (Overweight, corresponds to a recommendation to buy). The favorite in terms of expected profitability is Microsoft - the average target price of the company's shares calculated by FactSet assumes the potential for growth of quotations by 35%, and Meta securities have a 25% upside. The prospects of other technology giants are estimated more modestly: the growth potential of Apple and Alphabet shares is about 11%, Amazon - a little more than 7%.

This article was AI-translated and verified by a human editor