24.03 Liontrust Global Innovation Report - The Rise of AI 04.24 - Flipbook - Page 14
T E C H N O LO GY P E R F O R M A N C E I N 2 0 23 A N D T H E
M AG N IFICENT
Much was made in 2023 of the strength of the so-called Magnificent 7 stocks (Apple,
Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla) and the “narrowness” of their
leadership of the overall stock market.
The Magnificent 7 were indeed strong in 2023 and this was for
two key reasons – they were oversold in 2022 and they are leaders
in AI. However, a close look reveals that the gains in technology
in 2023 were a lot broader than just the Magnificent 7. In fact,
100 of the 132 technology companies in the Russell 1000 beat
the overall Russell 1000 median stock return of 13.7% in 2023 in
US dollars. That is broad, not narrow.
Furthermore, the valuations of the Magnificent 7 are not as
problematic as some have argued. When assessing valuation
multiples for companies with good growth prospects, it is essential to
take this growth into account and this can be done by using a PEG
ratio (forward price/earnings multiple divided by long term expected
EPS growth). The Magnificent 7’s average PEG ratio relative to the
overall S&P500 at the end of 2023 was 0.7 times, which is a
discount to its average over the past decade of 0.84 times.
PEG ratio: Magnificent 7 versus median S&P 500 stock
1.6x
1.4x
1.2x
1.0x
0.87x
Median since 2013 = 0.84x
0.8x
0.6x
0.4x
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Goldman Sachs (RHS), Bloomberg as at 14.11.23. YTD = Year to Date; PEG = PE to Growth.
Past performance does not predict future returns.
14 - The rise of AI: Technology and Innovation Report
2021
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