UBS Investment Bank Chief US equity strategist Jonathan Golub downgraded six of the so-called “Magnificent 7” stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Nvidia (NVDA) — from Overweight to Neutral in a new research note on Monday.
His call comes as the Magnificent 7, which also includes Tesla (TSLA), just had its largest weekly market cap loss in history. All seven of the big tech leaders are off their recent highs, as highlighted by a 10% single day-drawdown for Nvidia, its worst one day price performance since March 2020.
Golub, who rates sectors within the S&P 500 (^GSPC) not individual stocks, remains Overweight on technology outside of the six stocks he names in his note. But for the large companies who have grown earnings significantly over the past year, Golub believes the tide may be shifting, and other areas are set to outperform the largest stocks in the S&P 500.
“Investors attribute the run in mega cap stocks to animal spirits and the impact of AI,” Golub wrote. “However, our work indicates that surging earnings momentum (change in forward growth projections) fueled this upside. Unfortunately, this momentum is collapsing.”
The chart below highlights Golub’s point.
Consensus estimates from FactSet show earnings for those five companies are set to end the year with just shy of 20% year-over-year earnings growth in the fourth quarter, reflecting significantly slower growth than their prior pace. By that point, consensus expects the other 495 companies to be growing earnings by about 17% compared to the year prior, a significant uptick from their current growth rate.
“Our downgrade of the Big 6—from Overweight to Neutral—is not predicated on extended valuations, or doubts about AI,” Golub wrote. “Rather, it is an acknowledgement of the difficult comps and cyclical forces weighing on these stocks. These forces do not apply to other TECH+ companies or the rest of the market in the same way.”
