Yardeni founder advises downgrading to Mag7. Is a turnaround coming for bigtechs?

One of Wall Street's chief optimists, Ed Yardeni, is revising his outlook for the Magnificent Seven - the largest bigtechs - amid increasing competition and slowing profit growth at these companies. He estimates that technological advances will now boost performance not only at the megacaps, but also at a wider range of companies in the market. Against this backdrop, Yardeni Research suggests reducing exposure to the technology sector from the S&P 500 and reallocating capital. Analysts advise to pay attention to the financial sector, industry and health care, quotes Yardeni Research Bloomberg.

Yardeni Research, an analyst firm founded by economist Ed Yardeni, is actually recommending that the Magnificent Seven - the seven largest tech giants - be reduced in their portfolios relative to the rest of the S&P 500 index, expecting a change in earnings growth momentum, Bloomberg writes.

The repositioning follows several years of "outstanding performance" by the Magnificent Seven, Seeking Alpha points out, a group that includes companies such as Nvidia, Meta and Alphabet, among others. The index tracking these corporations is up more than 600% since the end of 2019, while the S&P 500 has added about 113%. This was a result of the soaring demand for tech stocks in the pandemic and the subsequent boom in artificial intelligence, Seeking Alpha notes.

However, Yardeni said Magnificent Seven should now be viewed with caution amid increasing competition and slowing profit growth in the seven. "We see more competitors coming after Magnificent Seven's profitable margin segments - and expect technology to improve productivity and profitability for the rest of the S&P 500 companies," the analyst said (as quoted by Bloomberg). He added that, in essence, "every company [in the S&P 500] is now becoming a technology company."

It no longer makes sense to bet on the two largest technology sectors in the S&P 500 portfolio: Information Technology and Communication Services (i.e., information technology and digital services companies), according to a note from Yardeni Research, Bloomberg writes. Since 2010, analysts have given these segments an increased weighting, but now experts suggest "keeping them in line with the market" (i.e., maintaining the position), while increasing the share in the financial and industrial sectors, as well as making a shift in favor of the health care sector.

Yardeni also sees little reason to continue increasing the U.S. share of the MSCI All Country World portfolio - especially after global markets have outperformed the U.S. this year thanks to lower valuations, a weaker dollar and the resilience of corporate earnings around the world. "The U.S. is now 65% of the market capitalization of the global stock market, so it's hard to recommend increasing the share in something that's already heavily overweight," he said on Bloomberg TV.

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