The Mag Seven stocks, which constitute approximately one-third of the S&P 500, face a challenging start to 2025 as investors reevaluate their positions. These megacap tech giants, including Nvidia and Meta Platforms, have significantly influenced the benchmark's gains over the past two years, primarily driven by the artificial intelligence trade. However, recent developments, such as the introduction of DeepSeek, a more affordable open-source AI model, have raised concerns about increasing competition and its potential impact on market dynamics.
The performance of the Mag Seven stocks has diverged, with Meta Platforms emerging as a standout performer. It has increased by 23% this year and achieved a remarkable 17-day win streak, a record unmatched by any Nasdaq-100 constituent since 1985. In contrast, Tesla has seen its shares decline nearly 19%, while Apple has fallen by more than 7% this year. Nvidia, however, remains robust with an 84% rise over the last 12 months.
"I would be cautious on the Mag Seven," – Siegel
Investor Jeremy Siegel has expressed caution regarding investing in the Mag Seven stocks at this time. He has highlighted the potential impact of rising competition on margins and questioned whether these companies will continue to lead in the next 12 months.
"As long as the Mag Seven continue, 15, 18, they'll be the leaders," – Siegel
Despite the uncertainty surrounding the Mag Seven stocks, Siegel sees potential in small- and mid-cap stocks that offer more attractive valuations. He prefers these investment avenues due to their relatively lower price-to-earnings ratios and the potential for decent returns without requiring significant growth.
"I like the other groups. I mean, at 19, I like them, and I know we talked about [it] a long time, and certainly they've lagged. You know, you go to mid-cap and you go to small-cap and you go to 15, 14, 13, you don't need much growth to get a decent return on that." – Siegel
As investors consider their strategies in light of these shifts, the unveiling of DeepSeek has become a focal point for assessing future market leadership. The competitive landscape within the AI sector could influence the trajectory of the Mag Seven stocks and their ability to maintain their position as market leaders.
"The question is, now, we see this competition, could bring down margin. Will they be the leaders in the next 12 months? I'd love to be able to give you an answer on that, but I think we just have to wait and see on the data." – Siegel
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