The Magnificent 7, consisting of Microsoft (MSFT), Meta Platforms (META), Amazon. com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), are now complete. 32% of the S’s market capitalization
NVIDIA stands out given the large accumulation of its market capitalization, which now exceeds $3. 1 trillion, following the wave of spending on synthetic intelligence. Given this resolution and his recent and ephemeral elevation to King of the S
For this analysis, a “bubble” will be explained as an inventory value that is justified through a company’s basic earning capacity. Based on trailing-twelve-month earnings and consensus earnings estimates for next year, the earnings-to-value ratios of all Magnificent 7 stocks are above the S.
Another way to price businesses is to compare their revenues, which is known as the price-to-sales ratio. All Magnificent 7s are priced at a higher price-to-sale ratio than the S.
Magnificent 7: Price/Sale
The annualized historical expansion of sales over the past three and five years has been impressive for most of the group.
The Magnificent 7: Historic Sales Growth Rate
Similarly, past gains consistent with consistent percentage growth have been impressive and exceptional in cases like NVIDIA.
The Magnificent 7: Historical Earnings Expansion Rate
The five-year annualized earnings of the Magnificent 7 in line with the percentage growth rate reflect how those companies fared relative to the stock market as a whole.
Historical profit and sales growth
Future earnings are the most important criterion when considering buying or owning a stock. Wall Street analysts’ consensus forecasts show marked optimism about NVIDIA’s earnings expansion prospects. In addition, the so-called sustainable expansion rate of the group supports long-term expansion. The rate of sustainable expansion theoretically indicates how fast the company can grow without borrowing more budget and the same capital structure.
The Magnificent 7: Projected Expansion Rates
Again, the profitability symbols of most Magnificent 7s are impressive. Gross margins look at profitability after all direct expenses, explained as charges for goods sold, have been removed from sales. Operating margins measure how much a company earns for every dollar of sales after paying variable expenses or the percentage of sales transferred to operating profit. NVIDIA converts a maximum of sixty cents of every dollar into operating profit and ranks in the most sensible position in the Magnificent 7 rankings.
The Magnificent 7: Profitability
Warren Buffett has argued that an undeniable value-to-earnings ratio can be misleading when analyzing a company with a high return on invested capital (ROIC). He said: “We like stocks that generate high returns on invested capital and where there is a strong possibility that this will continue. For example, the last time we acquired Coca-Cola, it was touted for about 23 times the profits. Using our acquisition value and today’s earnings, that’s about five times earnings. interaction of capital employed, return on capital, and long-term capital generated relative to existing acquisition value. To put the return on investment of the Magnificent 7 into perspective, the ROIC of the S
In addition, most of the big seven companies generate significant profits despite investing in developing companies. The free money margin indicates the percentage of profits converted into free money that the company can use or distribute to shareholders. NVIDIA is exceptional, with a maximum share of every dollar in sales transferred to loose money.
The Magnificent 7: Capital Allocation and Free Cash Flow Generation
Charlie Munger also focused on money rather than other valuation metrics when he said, “We try to stick to corporations that make a lot of money. We don’t really think of cost as low subscription value or low value relative to companies. ” In fact, it costs corporations founded on moneyArray just as a personal equity investor would. We cost corporations founded on moneyArray.
Free money yield refers to the percentage of free cash generated by a company as a percentage of its stock price. A lower performance of loose coins than the S&P 500, such as Magnificent 7 and NVIDIA, can be seen as investors already expect an increase consistent with the growth of loose coins and sustainability relative to the market.
The Big 7: Free Cash Flow Performance
Investors are already appreciating the strong fundamentals of the Magnificent 7, with stock market returns far exceeding those of the S.
Stock returns
Despite the strong outperformance of technology stocks, it is almost undeniable that the current scenario is not a bubble. High-build inventories sometimes have exceptional profitability relative to average inventories and the industry at a premium valuation. The percentage increase in the value of the Magnificent 7 has been based on solid fundamentals and not just a promise of long-term profitability.
The positive arguments about Big Tech and NVIDIA are reinforced by the rise of synthetic intelligence (AI). AI will most likely be a transformative tool for corporations that will generate truly extensive economic benefits. The complex calculations required by AI are generally performed through cloud service providers (CSPs). JPMorgan estimates that generation spending across the top 4 US CSPs will reach around $150 billion in 2024, up 39% from 2023. NVIDIA is expected to make significant profits from those spending as a leading supplier . of chips for AI.
On the contrary, the threat of owning those technology darlings has increased, adding in NVIDIA. The bullish situation is well known, and there is the option that capital spending on AI exceeds final demand for services, causing a setback, or that generation does not. keep your promises. Furthermore, it is difficult to maintain the mind-blowing profitability of corporations like NVIDIA in the long term, as capitalism subjects corporations to a brutal festival in the fight for profits. Investors buy or hold corporations for long-term profits, not afterlife profits. The afterlife only has meaning to the extent that it sheds light on the company’s long-term prospects. Companies like many of the Magnificent 7 have demonstrated astonishing profitability over time, demonstrating competitive merit that they deserve to be allowed. obtain excessive profits. However, this probability must be weighed against the value to be paid.
The large-cap tech stocks, represented through the Magnificent 7, continue to generate gains and lose money at impressive rates. Sometimes these are notable corporations with exceptional returns on capital, but some selective pruning is likely to constitute prudent threat management, even if there are no apparent symptoms of trouble at present. Selective purchases in underperforming and less economically sensitive sectors, such as healthcare and consumer staples, can offer a strong counterweight to the concentration of functionality and risk in the generation sector.
Disclosure: Glenview Trust most recently owns stakes in Microsoft (MSFT), Meta Platforms (META), Amazon. com (AMZN), Apple (AAPL), NVIDIA (NVDA), Broadcom (AVGO), Coca-Cola (KO), and AlphabetArray ( GOOGL) as a component of their investment strategies.