Big news! Microsoft hit a whopping $3 trillion in market capitalization this Wednesday, outstripping the combined value of all forty companies listed on France’s CAC 40, which barely surpasses $2.2 trillion. Before Microsoft, only Apple had achieved this feat last year. As we kick off 2024, the American tech scene continues its dominance on Wall Street and beyond. In 2023, the top seven U.S. tech giants – Microsoft, Apple, Alphabet (Google), Meta (Facebook), Amazon, Tesla, and Nvidia – were responsible for a staggering two-thirds of the S&P 500’s 24% surge. Investors are particularly bullish on their ability to deliver double-digit growth and maintain an impressive average net margin of 20% for the previous fiscal year. What’s more, these industry leaders have a knack for captivating investors with narratives straight out of Hollywood.
S&P Total Return (Blue) and the 7 Magnificients TR (white) (Normalized)
Over the past year, the hype around artificial intelligence has been palpable with Microsoft leading the charge.. Among these titans, many are must-haves for any investor’s portfolio.
Alphabet is gearing up with Bard and is set to roll out a cutting-edge generative AI service to all Google search users in the coming days. These frontrunners not only dominate their respective sectors but also engage in fierce competition, particularly in cloud computing, where Amazon, Microsoft, and Google are battling it out. Apple shipped close to 235 million smartphones in 2023, marking a 4% increase from 2022, even as the market dipped by 3%. Apple not only led in value but also clinched the top spot in volume, surpassing its Korean counterpart, Samsung. Meanwhile, Amazon commands roughly 40% of the U.S. e-commerce market, while Nvidia holds a commanding 80% share in the AI graphics card segment, leaving AMD trailing at just over 10%.
While concerns once loomed over the potential breakup of these American tech giants, it’s the Chinese tech champions who’ve faced the music, notably Alibaba, under the scrutiny of the Chinese Communist Party. Despite initial fears, Chinese companies like BYD are shaking up industries, overtaking Tesla as the leading electric vehicle manufacturer, fueling a price war that’s squeezing Elon Musk’s company. The future might see Tesla grappling with tougher competition unless policymakers, particularly in the U.S., step in to regulate Chinese imports.
Meta, formerly Facebook, is also grappling with formidable competition from China, as younger demographics flock to TikTok over its social media platforms. As such, it’s not far-fetched to envision the Magnificent Seven dwindling to the Fantastic Five, though, for now, the entire tech sector is riding high on the back of receding inflation and subsequent interest rate drops. Given this sector’s sensitivity to bond yields, any uptick in rates could exert pressure on these companies’ valuations.