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deVere backs AI wave behind Magnificent Seven, as bubble fears grow

Yasmine Masi21 February 2024
Data centre

The chief executive of financial advisory and asset management company deVere Group, Nigel Green, has allayed investors’ fears of a bubble forming around the so-called Magnificent Seven, the group of high-performing tech stocks.

Green said the performance of these stocks has been driven by a “fundamental shift” in the development of artificial intelligence (AI), rather than a “speculative bubble”. This comes as these stocks account for approximately half of the gains on the S&P 500 Index and take up more than 25 per cent of the index’s total market capitalisation.

“Nvidia, in particular, has been making headlines with an astonishing 50% surge in its stock value within the first two months of the year,” he said.

“However, labelling this surge as a bubble requires a nuanced understanding of the underlying factors driving these unprecedented gains. Rather than a speculative mania, the market’s response to the Magnificent Seven seems to be grounded in the transformative power of AI, which is reshaping entire industries, enhancing productivity, and paving the way for the creation of new ones.

“At the heart of this paradigm shift is the increasing integration of AI technologies across various sectors. Meta’s focus on the metaverse, Microsoft’s investments in cloud computing and AI-driven solutions, and Nvidia’s prowess in graphics processing units (GPUs) for AI applications underscore the importance of these companies in shaping the tech landscape. Their combined market capitalization reflects investor confidence in the long-term potential of AI to drive innovation, efficiency, and profitability.”

Green said these companies are also partly responsible for the visible advancements within the AI industry and “shaping [it’s] future”.

“Meta, for instance, is investing heavily in AI research to create more immersive and interactive experiences within the metaverse. Microsoft’s Azure cloud platform leverages AI to offer scalable and intelligent solutions for businesses, demonstrating a commitment to AI-driven transformation,” he said.

“Nvidia’s remarkable stock performance can be attributed to the increasing demand for GPUs in AI and machine learning applications. As industries across the board integrate AI into their operations, the need for powerful hardware accelerators becomes paramount. Nvidia’s strategic positioning in this space positions it as a key player driving the AI revolution. The surge in its stock value reflects not only current market trends but also anticipation of sustained demand for its products as AI adoption continues to grow.”

The CEO said the Magnificent Seven have solidified their place in portfolios and in markets.

“Collectively, they are shaping the broader market sentiment and influencing investment strategies. Investors are recognizing the pivotal role these companies play in the AI ecosystem, prompting a re-evaluation of traditional valuation metrics,” he said.

“The premium placed on these stocks reflects a consensus that they are at the forefront of a transformative era, where AI is not just a technological advancement but a fundamental driver of economic and industrial change. We expect to see some more volatility in the markets than we’ve seen recently, but it’s almost inevitable that the longer-term winners will be stocks which are driven by AI.”

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