Nvidia has grown by greater than 3,000% in the past five years alone — but the AI chip maker’s high profits and those of the other Magnificent Seven tech giants (Nvidia, Amazon, Apple, Meta, Microsoft, Google and Tesla) are not without risks, an industry expert warns.
IN “Smart Investing” video interview released Wednesday, Eric Beiley, managing director of The Beiley Group at Steward Partners, The wealth planning and investment strategy firm assessed the impact of the Magnificent Seven on the market.
“This handful of stocks have just delivered huge gains,” he said, highlighting Nvidia’s success over 100% stocks up since the starting of the 12 months. “And the gains over the last three, five years have been stunning.”
An example of Nvidia’s strong profits got here last week when CEO Jensen Huang cashed in 1.3 million shares for a net profit of $169 million, the most he’s ever made in a single month.
Nvidia CEO Jensen Huang. Photographer: I-Hwa Cheng/Bloomberg via Getty Images
There are risks, nonetheless. Beiley noted that the Magnificent Seven generated “the majority of the returns of the indices.”
In 2023, the Magnificent Seven returned 75.71% in comparison with 24.23% for the S&P 500. As of Tuesday, this group accounted for about 35% the market value of the S&P and the total value of its shares increased by roughly 380% over the last five years.
This huge increase is “concerning” because any slowdown or weakening of those firms “will be very significant,” in response to Beiley.
“These companies need to continue to generate strong revenues and profits to maintain this momentum,” he said.
Investors will “of course” proceed to purchase Magnificent Seven stock and get rewarded for doing so — but the extremely high valuations also come with risks, Beiley said.
“You have to be careful when investing in these companies,” he warned.
Some of those risks were on full display two weeks ago, when Nvidia shares fell 16% and the company lost greater than $500 billion in market capitalization in three days — greater than whole market capitalization of Samsung or Costco.
Commodity recovered and it’s about 178% at the time of this writing.