In the world of stocks, the Magnificent 7 are capturing attention for their strong performance, valuation, and earnings. Goldman Sachs also highlights their focus on reinvestment, a key factor in their success.
According to Tony Pasquariello, head of hedge fund coverage at Goldman Sachs, the top companies in the group – Apple (AAPL), Amazon (AMZN), Alphabet (GOOG) (GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) – are expected to spend a total of $348 billion on capital expenditures and research and development.
What sets these companies apart is their commitment to reinvesting in their businesses. Pasquariello notes that the Magnificent 7 reinvests 61% of their operating free cash flow back into capex and R&D, which is three times more than the S&P 500.
In terms of earnings growth, the S&P is tracking a 6% increase year over year in Q1, while the Magnificent 7 are seeing a 48% growth and the rest of the S&P 500 is down 2%. This outperformance is evident in their stock performance as well, with the Magnificent 7 outperforming the Russell 2000 by a factor of 6x last year.
While some may have doubted the sustainability of this outperformance, the mega caps have continued to impress with an 18% increase year to date, compared to the Russell’s 3% increase. DailyBubble sees this as a testament to the strength and resilience of these top companies in the market.