[Weekend Money] Fading M7 Clout... "That Is Why They Are Cheap"

Earnings Continue Their Steady Uptrend... Financial Conditions Also Supportive
Anthropic Incident Only a Gentle Breeze for AI Hardware Firms

The presence of the flagship mega-cap tech stocks known as the "Magnificent Seven (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta, and Tesla)" in the U.S. stock market is diminishing. As expectations for an economic recovery spread across the market, attention is shifting toward cyclical stocks. Analysts note that as a result, the valuation of these companies has become cheaper, which can instead be seen as an opportunity to enter.

Hyundai Motor Securities has tracked the market-cap weight of the Magnificent Seven (M7) within the U.S. S&P 500 Index and drew this conclusion. The M7’s market-cap share has been steadily declining since it hit a peak of 35% in November last year.

Jangkwon Ha, an analyst at Hyundai Motor Securities, said, "Recently, signals confirming that the economy has bottomed out have strengthened, and expectations for an economic upturn have begun to act as a key driver for the stock market," adding, "Typically, in such phases, the influence of big tech names like the M7 tends to diminish, and as long as the economic momentum continues, there is a high likelihood that this trend will persist over the longer term."

However, it is still too early to abandon confidence in the M7. In the short term, their combined weight remains high at around 34%, and it is also true that their valuations have become more attractive. Ha noted, "Among large-cap stocks, AI-related names are trading at multiples below their five-year average and are at their cheapest levels since the sharp correction in April last year," and added, "Their earnings remain strong compared with non-AI-related stocks, but their share-price performance has relatively failed to keep up."

The growing concerns triggered by Anthropic, referred to as a second DeepSeek incident, are also clearly a burden. As Anthropic’s artificial intelligence (AI) tools such as "Claude Cowork" begin to replace existing software, worries that even major software-as-a-service (SaaS) companies like ServiceNow are facing an existential crisis have indeed sparked heavy selling of tech stocks. However, the more intense the competition in AI software becomes, the more it creates opportunities for AI hardware sectors that are benefiting from bottlenecks. With the transition to an AI-driven industry, the labor market also remains subdued, and a loose financial environment is expected to continue.

Ha said, "The earnings estimates for Nvidia, the world’s largest company by market capitalization, have risen by nearly 30% over the past three months, while its share price has fallen by close to 5%," and added, "Given that the market has already digested volatility drivers such as the geopolitical risks sparked by U.S. President Donald Trump, the nomination of Kevin Warsh as Federal Reserve Chair, and the Anthropic incident, the index is likely to push its upper range higher, powered by an accommodative financial environment and earnings momentum in AI leaders, at least until April, when the market fully enters the influence zone of the midterm elections."