Key takeout
- The “Grand Seven” saw an impressive increase of over 13% in May, making it one of the top performers in the financial market during that month.
- While the group is still experiencing losses this year, upcoming events, like Apple’s global developer conference and Tesla’s planned rollout of Robotaxis, might spark a recovery.
- After bouncing back from a recession labeled “liberation day,” tech stocks have returned to levels not seen in a while.
The Grand Seven had a great May, yet they remain in the red for 2025. What could be next?
Last month, seven major tech companies, including Nvidia (NVDA), Tesla (TSLA), and Meta Platforms, outperformed numerous other assets, according to Deutsche Bank analyst Henry Allen. Allen noted that the group experienced its largest monthly gain in two years, with a rise of over 13% in May.
However, the group continues to be one of the few areas with positive traction in an otherwise struggling global market this year. Among the 32 investment categories that Allen monitors, including Global Equity Index and Government Bonds, crude oil, another asset, is also facing a decline annually.
Whether the Grand Seven can shift into a positive trend this month may hinge on Wall Street’s reactions to looming corporate events.
What could elevate the Grand Seven’s laggards in June
Apple (AAPL) is set to host its Worldwide Developers Conference on June 9th, where the company is expected to reveal software development kits that could assist external developers in enhancing features based on Apple’s leading language models. This might allow Apple to delegate some responsibilities in creating AI products for its devices.
Meanwhile, around mid-June, Tesla (TSLA) plans to launch its Robotaxi services in Austin, Texas.
So far this year, both Apple and Tesla have had a rough time, with stock prices down by approximately 20% and 16%, respectively. However, renewed investor interest in the advancement of a company within various critical sectors could bolster stock prices.
Bank of America upgrades the tech sector, downgrades communications
On Monday, Bank of America analysts downgraded the communications sector, which includes companies like Alphabet (GOOG) and Meta, moving them from neutral status. Conversely, they upgraded Microsoft (MSFT), NVIDIA, and Broadcom (AVGO) to neutral from a previously weaker rating. The analysts cited concerns around high exposure to unpredictable revenue streams in the communications and media industries.
Last month, the risk of a recession eased, alleviating some concerns between the U.S. and China, as both sides have recently accused each other of breaching agreements. Companies like Alphabet and Meta could be especially vulnerable since their advertising businesses are largely dependent on their extensive audience reach.
However, Bank of America highlighted another risk facing tech giants. Rising interest rates in 2023 have led to tighter budget constraints, resulting in decreased spending, lower capital investments, and increased cash inflows. Consequently, Alphabet and Meta are deeply involved in an AI arms race, allegedly spending substantial amounts annually on AI infrastructure. This could restrict their flexibility in the event of an economic downturn.
Additionally, high valuations continue to pose a challenge for tech stocks. Though valuations have dropped from recent peaks, the stocks still remain pricey. The Grand Seven carries a P/E ratio of 33.1, significantly surpassing the long-term average for the S&P 500, with revenue forecasts still on the rise.
