How Magnificent are these 7?

In a recent statement, Sonja Laud, the Chief Investment Officer of Legal & General Investment Management, (LGIM) and former speaker at several RAOGlobal events, has cautioned that the "Magnificent Seven" AI stocks may be approaching bubble territory. She advises investors to adopt a thematic approach to AI rather than betting on individual names.

The excitement surrounding generative AI has been a major catalyst for the performance of AI-linked stocks in 2023, with Big Tech firms delivering impressive results in the latest earnings season. Nvidia, in particular, stood out with its bumper results. However, industry players have expressed concerns that these stocks, which outperformed significantly last year, may be vulnerable to pullbacks if future earnings fall short of the elevated expectations surrounding adoption speed and profitability.

Laud points out that the US market is trading at a forward price-to-earnings ratio of 21x, prompting discussions about whether a bubble is forming. While the current strength in earnings may provide validation, Laud emphasizes the challenge of predicting when this trend might come to an end, describing the situation as "very tricky territory."

Despite the potential bubble concerns, Laud highlights the presence of "very serious structural themes" that underpin the superior performance of these stocks. She notes that the success of notable providers, like Nvidia, is fueled by the long-term structural changes that AI will deliver. Laud believes it is important to look beyond the immediate understanding of AI and consider the long-term implications and the relative winners and losers in the industry.

Laud suggests adopting a thematic approach to AI rather than focusing on individual names. This approach involves understanding the level of opportunity and disruption occurring in the AI industry. Instead of trying to determine when a particular stock, such as Nvidia, is reaching bubble territory or when valuations become too expensive, Laud advises investors to consider the broader themes within AI.

Who are the Magnificent Seven?

The "Magnificent Seven" refers to a group of prominent investment brands that have been driving significant growth and influencing market trends. These firms are recognized for their strong performance, innovative strategies, and influential presence in the investment landscape. The Magnificent Seven investment brands are considered leaders in the industry, contributing to the overall market dynamics and shaping investor sentiments.

The meteoric rise in the profits and market capitalizations of the Magnificent 7 U.S. tech behemoths — Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla — outstrip those of all listed companies in almost every G20 country, the bank said in a research note Tuesday. Of the non-U.S. G20 countries, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.

Each of these seven investment brands brings a unique approach and expertise to the table, catering to a wide range of investors and offering diversified investment solutions. Their track records of success, commitment to excellence, and ability to adapt to changing market conditions have cemented their positions as key players in the investment world.

Investors often look to the Magnificent Seven for insights, guidance, and opportunities to grow and protect their wealth. With their robust research capabilities, strategic insights, and global reach, these investment brands play a crucial role in helping investors navigate the complexities of the financial markets.

Overall, the Magnificent Seven investment brands represent a powerful force in the investment industry, setting standards for performance, innovation, and integrity. Their collective influence shapes the investment landscape and underscores the importance of expert guidance and sound investment strategies in achieving financial success.

Specifically, Magnificent 7 profits now exceed almost every country in the world. Should we be worried?

In conclusion, while Laud acknowledges the potential for a bubble and the challenges of timing market movements, she considers AI to be an incredibly important topic for investors to understand. Taking a thematic approach to AI investments allows investors to capture the long-term opportunities and disruptions while avoiding the risks associated with individual stock picks. Laud’s approach to AI investing is a good one, but it’s not the only way to approach the market. For