Bigtechs are up $4 tlrn on the back of S&P 500 records. Will the rally continue?

More than half of the recent record growth of the S&P 500 provided only seven major technology companies - among them Nvidia, Apple and Amazon, noted Bloomberg. In recent weeks, they have collectively increased their market capitalization by about $4 trillion, the agency calculated.

Shares of major technology companies were once again the driver of U.S. stock market growth at the end of last week, pushing the S&P 500 and Nasdaq Composite to new highs. Since the S&P 500 hit a local low on March 30 amid war in the Middle East - the technology sector has gone from being the worst performing segment of the index to the best, Bloomberg noted.

Since the end of March, the index, which tracks the dynamics of the so-called "Magnificent Seven" of technology giants, has grown by 20%, having recovered the 17% drop from the October peak, which occurred against the backdrop of the war. And the most indicative was the turnaround in Microsoft shares: according to data at the end of the day on April 17, they added 19% from the local minimum on March 27 - after a decline of 34% from the maximum on October 28, Bloomberg writes.

In total, the agency calculated, seven major technology companies: Nvidia, Amazon, Microsoft, Broadcom, Alphabet, Meta Platforms and Apple - have increased their market capitalization in recent weeks by about $4 trillion. It is this growth provided more than half of the recent growth of the S&P 500, Bloomberg points out.

On Friday, April 17, the S&P 500 and Nasdaq Composite once again reached historic highs for the last few trading days - although less than a month ago, the Nasdaq Composite is in the correction zone, and the S&P 500 was only 1% away from this territory. Last week, U.S. stock indices demonstrated positive dynamics on the back of decreasing escalation in the Middle East and Iran's statements about readiness to open the Strait of Hormuz. However, the situation changed at the weekend, when Iran again closed shipping through the strait - Tehran linked its position to the ongoing blockade of Iranian ports and ships by the US. The U.S. then seized and damaged an Iranian-flagged tanker in the Gulf of Oman that had attempted to break the U.S. military blockade. And Tehran - fired on several vessels in the Strait of Hormuz, Reuters wrote. Against the background of these events, contracts on the S&P 500 and Nasdaq 100 decline on April 20 by 0.5%, the Dow Jones - lose 0.6%. In the red zone at the premarket on April 20 are also securities of Nvidia, Amazon, Microsoft, Broadcom, Alphabet, Meta Platforms and Apple.

Shares of bigtech companies have a significant weight in the S&P 500, accounting for about 36% of its market capitalization, according to Dow Jones data. This means that the growth of the "Magnificent Seven" supports the index, while their decline, on the contrary, puts pressure on it, MarketWatch points out.

"Over the past six months, we've realized that the S&P 500 actually can't grow without the technology sector," said Osung Kwon, chief equity strategist at Wells Fargo (quoted by Bloomberg). If major technology companies that provide infrastructure for artificial intelligence "continue to post positive results, it will be a good thing for the S&P 500," he added.

"[For the S&P 500 and the Magnificent Seven stocks], it was an incredibly quick reversal. To a certain extent, it [was due to] a rebound from the previous lag and a reallocation of [investors'] positions," said Paul Wick, chief investment officer at Seligman Investments, which has about $30 billion in assets under management (quoted by Bloomberg).

"When geopolitics come to the forefront, it tends to bring investor attention back to fundamentals and create opportunities for earnings," MarketWatch quoted Morgan Stanley senior portfolio manager Andrew Slimmon as saying.

"Typically, the reporting season supports risk appetite," notes DWS Chief Investment Officer David Bianco (quoted in MarketWatch).

The current rebound follows a brief period of weakness for the technology group, which has led the way for much of the three-year bull market in the U.S. thanks to excitement around AI and strong earnings growth, Bloomberg notes. Late last year, concerns on Wall Street were heightened by soaring technology capital expenditures, causing many market participants to question exactly when those investments would begin to yield meaningful returns.

Now these fears have not disappeared, the agency points out: two weeks ago hedge funds sold off U.S. technology stocks at the fastest pace in more than five years, according to data from the prime brokerage division of Goldman Sachs. Net outflow of funds was observed in almost all sub-sectors, with software companies under the greatest pressure: they accounted for about 60% of total sales - almost entirely at the expense of short positions.

Nevertheless, the sell-off, which occurred amid war and AI concerns, has improved the market valuation of the technology sector, Bloomberg points out. Excluding Tesla's exorbitant valuations, securities of other "Magnificent Seven" companies are now trading at a multiple of about 24 to forward-looking earnings (forward-looking P/E) versus 29 at the end of October. This is slightly higher than the same indicator for securities from the S&P 500 index (about 21), notes Bloomberg.

Earnings growth for major tech companies should remain robust and the potential for returns on AI investments will continue to improve, says Osung Kwon. He predicts the S&P 500 will reach 7,300 points by summer, about 2.4% above Friday's closing level.

Wall Street also expects upcoming reports to confirm the current optimism. According to Bloomberg Intelligence, the "Magnificent Seven" may show profit growth of 19% this year versus 17% for the rest of the S&P 500 companies. In 2027, the gap is expected to widen: the profit of this group will grow by 22%, while the rest of the companies in the index, this figure will be at about 15%, the agency writes.

Concerns around ROI and capital expenditure pressure on cash flows are gradually easing, says Natixis Investment Managers portfolio strategist Garrett Melson. The tech giants' current businesses remain extremely profitable and generate significant cash flows, he says, confirming their role as a defensive segment of the market. At the same time, investor anxiety over the scale of investments in artificial intelligence persists, Bloomberg points out. The four largest companies - Amazon, Microsoft, Alphabet and Meta Platforms - are set to increase their combined capital spending on AI to more than $618 billion in 2026 versus $376 billion in 2025.

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