American investors are steadily rotating back into the Magnificent 7 as bargain hunting picks up pace after the recent earnings.
Top Magnificent 7 ETF is Seeing More Inflows
The Roundhill Magnificent Seven ETF (CBOE: MAGS) has had inflows in the last five days, bringing its monthly gains to $236 million. It now holds over $4.29 billion in assets under management.
Most Magnificent 7 stocks have bounced back in the past few weeks. Nvidia (NASDAQ:NVDA) stock has jumped by 17% from its July lows and is slowly nearing its all-time high. Amazon (NASDAQ:AMZN) jumped to a record high of $287 after earnings, while Microsoft (NASDAQ:MSFT) has soared by over 40% from its lowest point in July.
Other companies in the group like Meta Platforms, Alphabet, and Apple have also rebounded in the past few weeks. Most of these firms released strong financial results, with the artificial intelligence boom playing a role in their performance.
In addition to their growth, many Magnificent 7 companies have become bargains following their recent underperformance. Nvidia, despite its strong revenue and profitability growth and buybacks, has a forward P/E ratio of 23, much lower than the five-year average of 52.
Amazon has a forward PE ratio of 22, while Microsoft has a multiple of 25. Google and Meta Platforms have multiples of 17 and 19, respectively. While these numbers are higher than the S&P 500 Index’s average of 20, they are much lower than their historical levels.
Analysts remain optimistic about Magnificent 7 stocks because of their growth, robust market share, and their profits. Benzinga data shows that the consensus Nvidia stock target among analysts is $310, up by 38% from the current level. Similarly, Google’s target is $420, up by 18% from where it is today.
Rising Costs is a Big Concern Among Investors
Most Magnificent 7 companies reported strong results, with their revenues being higher than in the same period last year. However, a key concern among investors is their elevated costs and the return on investment.
Tesla (NASDAQ:TSLA) reported strong revenue growth, with the main concern being its negative free cash flow and its spending guidance. It expects to spend billions of dollars this year on its Terafab project.
Alphabet plans to spend $205 billion in capital expenditures this year. Similarly, Amazon, Meta Platforms, and Microsoft plans to spend $200 billion, $145 billion, and $190 billion, respectively.
As a result, there is a risk that they will issue substantial stocks to fund these investments. Google has already raised over $85 billion in capex through a combination of debt and equity.
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