Technology Giants in Market Turmoil: A Monday Disaster for 'The Magnificent Seven'

Technology stocks experienced another disastrous day. Following an impressive run in the first half of 2024 that brought record highs to the market, the mega-cap tech names were among the biggest losers in this global sell-off that began last week and continued on Monday. Known collectively as 'The Magnificent Seven'—a nickname inspired by a film and encompassing Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—these companies had become the darlings of Wall Street. According to a report from Morgan Stanley, these seven firms accounted for half of the total gains in the S&P 500 last year. However, on Monday, the stocks of all these companies closed down by at least 3%, with the group losing more than 600 billion dollars in market capitalization. Even before the weaker-than-expected U.S. economic data last week, which rekindled recession fears on Wall Street, big tech stocks had already begun to cool down. Investors, anticipating a possible rate cut by the Fed that has yet to materialize, shifted some of their tech gains into more value-oriented sectors, an event the Wall Street Journal described as 'a historic scale stock market rotation.' Geopolitical tensions recently also weighed on chip stocks, including the AI favorite Nvidia. The chipmaker's shares fell 7% on Monday, making it the hardest hit among the Magnificent Seven, although they have more than doubled for the year. According to Ted Mortonson of Baird, speaking to Fortune, the tech giants would have had to beat estimates for Q2 earnings calls by a significant margin to have any hope of halting the sell-off. This did not happen; Amazon, in particular, missed revenue expectations and issued a weak sales outlook last week. Meanwhile, investors were inundated with information about the significant investments of the Magnificent Seven in AI, but received far less information about how this would impact the companies' top lines in the near future. Regulatory pressure also increased, including a decision by a federal judge on Monday that Google illegally maintained a monopoly in search on Android and Apple iPhone devices. The largest factor for the losses in big tech stocks on Monday was a plunge in Japan’s Nikkei-225 Index that continued during the opening of U.S. markets. Markets partially recovered by midday, however, the information technology sector ended down 3.78%, making it the worst-performing sector according to Bloomberg. Particularly notable were the losses in Apple, after Warren Buffett’s Berkshire Hathaway announced on Saturday that it had sold nearly half of its position in America’s largest company in Q2. Like many analysts, Jay Hatfield, CEO of Infrastructure Capital Advisors, emphasized that Buffett's move was no reason to panic about Apple’s viability. Hatfield noted that his firm considered Apple overvalued at its recent high above $237. Shares of the iPhone maker fell nearly 5% on Monday, dropping below $210. This valuation issue prompted the Oracle of Omaha to sell Apple’s shares—a move long anticipated by Berkshire analysts. It was by no means, Hatfield stressed, an indictment of the U.S. economy. 'The notion that we are heading into a recession because of his sale of Apple is completely absurd,' Hatfield said. And even if an economic downturn occurs, many analysts say Apple and the rest of the Magnificent Seven enjoy incredible market dominance and massive free cash flows, making them relative safety nets for investors. Monday’s sell-off does not change that.