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Klaviyo Inc. is reportedly raising the target of its upcoming initial public offering to more than $550 million.
Bloomberg News reported late Sunday that Klaviyo has decided to raise the target range for its shares to $27 to $29, up from its previously stated range of $25 to $27 a share. At the top of that new range, the IPO would raise $557 million, with the company valued at about $8.7 billion, according to Bloomberg.
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There are more signs that investors are cooling a bit on the hot artificial intelligence play, though no one appears ready to let go of their Nvidia stock just yet.
That’s according to Vanda Research analysts, who shared a chart of their latest weekly data showing how retail investor’s net purchases of AI-themed stocks is “steadily waning”:
Marco Iachini, senior vice president, Giacomo Pierantoni, head of data and Lucas Mantle, data scientist at Vanda, said they’ve also noticed fewer news stories covering the sector as well, in their Vandatrack weekly comment that published Thursday.
The fervor for AI-related stocks and technology took off earlier this year, with a pinnacle moment in May when Nvidia
NVDA,
made big predictions on a boom for demand for its AI-related chips. Shares of the company are still up 211% so far this year, but enthusiasm for many tech stocks faded in August as China and interest rate-hike worries cropped up and some companies stressed AI benefits might not happen right away.
That said, Vanda analysts don’t expect Nvidia will feel the hurt of any such waning interest. They point out that short interest in the chip maker has seen a “considerable decline,” in line with its soaring stock price.
“This phenomenon suggests that bearish institutional investors, including long/short hedge funds, may have been compelled to cover their short positions,” said Iachini and his team. “As a result they are unlikely to want to sell the stock in the near term barring strong conviction to do so.”
“It is crucial to recognize that a slowdown in retail demand, by itself, is improbable to trigger substantial price movements, without active bearish participation from institutional investors,” they added.
However, the story is different for smaller AI-related companies such as smaller-cap C3.ai
AI,
as seen in their chart:
For C3.ai, they see a selling trend persisting in coming weeks. The AI software group’s shares are up 154% so far this year, but down 9% this month, taking a hit recently from solid quarterly results that came with forecasts for a bigger-than-expected full year loss. Analysts aren’t quite giving up — among 10 covering the company tracked by FactSet most have hold or a similar rating.
“We believe C3.ai is taking the proper steps to capitalize on Generative AI, but it will take time to prove out,” said a team of analysts at Oppenheimer led by Timothy Horan, after those results were released on Sept. 7. They rate the company perform.
Vanda analysts said another exception to an AI buying slowdown has been IonQ
IONQ,
“a relatively small quantum computing company that has been outperforming its AI-related counterparts.” They noted “remarkably resilient” demand for the stock, as short interest also increases rapidly.
“This juxtaposition raises a cautionary flag, as a potential weakening of retail interest, coupled with speculative institutional investors accumulating short positions, could create a demand-supply imbalance, potentially triggering a selloff,” they said. Shares of IONQ have soared 422% year-to-date. The company lifted its lifted full-year bookings guidance last month as it reported blowout second-quarter sales.
Young Money blogger Jack Raines highlighted the slowing interest in AI in a post on Thursday , citing data from analytics firm Similarweb that showed ChatGPT traffic down 3.2% in August, after 10% declines in June and July.
“While ChatGPT will probably experience a resurgence this fall as students return to the classroom and expedite their homework via chatbot, it seems like talks of AI disrupting/replacing anything and everything have cooled down,” he said, adding that the “initial euphoria was a bit much.”
Deutsche Bank strategists hopped on the topic in a note to clients entitled “Even hype needs a summer break,” on Thursday, noting how AI interest waned as investors went to the beach and the media turned its attention to extreme weather and “silly season” stories.
“Under the surface, though, there have been important developments indicating a slow maturing of the cycle, of the underlying technologies and of attitudes to a revolution in waiting,” said a team led by analyst Adrian Cox.
Those include Ai being the “elephant in the earnings room,” this summer that also brought a steady stream of AI-related tech announcements. Another theme “Your job is safe..for now,” came via fresh evidence that AI might boost rather than replace white-collar jobs, while yet another saw U.S. politicians also got involved.
This week saw Tesla CEO Elon Musk telling Capital Hill politicians that a new federal agency to oversee AI development is a must.
Another big theme that erupted this summer was the chatter by contrarian commentators questioning the hype around generative AI. Cox alluded to the Similarweb report that got everyone excited as it showed Chat GPT traffic falling to 1.4 billion visitors in August from 1.8 billion in May.
“The bigger picture is that open.ai had zero visitors before the launch of ChatGPT less than a year ago and is now No. 28 in the world, according to Similarweb,” said the Deutsche Bank team.
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Arm Holding Ltd. priced its initial public offering at the high end of its expected range late Wednesday following intense interest.
The British chip-design company priced shares at $51, raising $4.87 billion, following earlier reports that Arm would be pricing its IPO at $52 a share. A source close to the deal confirmed to MarketWatch that $52 had been the expected price, but that it was reduced to $51. That puts the chip designer at just over a $52 billion valuation. Recently, Arm had stated a targeted range of $47 to $51.
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Apple refreshed its iPhone and Apple Watch lineups at a Tuesday event that focused on camera and processing improvements for the phones as well as new gesture controls for the watch.
Apple
AAPL,
kept prices the same on three of its iPhone models, while boosting the starting price of the iPhone 15 Pro Max for the first time when it eliminated what previously was the smallest and cheapest configuration. The least expensive iPhone 15 Pro Max will cost $1,199 for 256GB of storage, which is what that configuration cost a year ago, though at that time there was also a cheaper 128GB option. Apple previously had stuck with a $1,099 base price on the iPhone Pro Max since it rolled out that model in 2019.
Both the iPhone 15 Pro and the iPhone 15 Pro Max will feature Apple’s custom designed A17 Pro processor, a faster chip that the company says will boost the mobile gaming experience.
The Pro models are getting slight design enhancements, including new titanium casing and slimmer edges. Apple says that the use of titanium, rather than stainless steel, makes the models lighter than their predecessor.
Perhaps the best camera upgrade is exclusive to the Pro Max. That phone will have a better telephoto camera supporting up to five-times zoom, compared with three times before, and will be able to capture three-dimensional video that can be viewed with Apple’s soon-to-launch Vision Pro headset.
See also: Vision Pro could be Apple’s biggest hit since iPhone
The iPhone 15 and iPhone 15 Plus will receive enhancements, too, including speed boosts via Apple’s A16 processor and camera upgrades that will support better use of portrait mode. The satellite connectivity feature that launched on last year’s iPhones will expand to include roadside assistance as well.
After facing criticism for the iPhone’s “notch,” Apple turned that space into a Dynamic Island on Pro models last year. Now that technology is coming to the base-level models as well, so users will be able to use that space for more functional means like changing songs.
iPhone users may be able to throw away their Lightning cables if they get the new models, as all four will charge with the more universal USB-C connectivity, as will other Apple devices such as AirPods Pro. Apple did not spend a lot of time addressing the change from its proprietary “Lightning” connecter, which was forced by new European rules requiring universal connections.
More on iPhone 15: Apple increases base price on highest-end iPhone for first time
Apple also detailed the new Apple Watch Series 9 lineup, which includes the second version of the Apple Watch Ultra. The new base Apple Watches will have a new S9 chip that could lead to speed and efficiency improvements and faster load times, the same 18-hour battery life, a new FineWoven fabric band and up to 2000 nit brightness display. The Apple Watch Ultra 2 has features including 36 hours of battery life, an S9 SiP chip, and a 3000-nit brightness display
The new Apple Watch Series 9 also features a new “double-tap” gesture, which allows people to answer calls and interact with their watch by tapping their index finger and thumb together when their non-watch hand is being previously occupied.
For more: New Apple Watch Series 9 — cost, new features, and when it comes out
The new Apple Watch models are set to become available for preorder immediately following the Sept. 12 launch event, and will be available for regular purchase on Friday Sept. 22.
Apple said the new Apple Watch would be its first fully carbon-neutral device, and dedicated a solid chunk of its hour-and-a-half presentation to discussing environmental sustainability efforts. The company is aiming to be completely carbon-neutral across its operations and supplier operations by 2030.
Apple also noted that it will no longer use leather in Watch bands, nor any other product. The company also moved up its goal for ditching all plastic packaging — it now expects to accomplish that by the end of 2024.
See: Apple to drop plastic packaging by end of next year, no leather cases for iPhone15
Apple added new pink colors to its iPhone and Watch lineup as well. The company also added two new tiers to its iCloud product, which will offer options for 6 and 12 terabytes of remote storage after previously topping out at 2 terabytes.
Apple stock declined during and after the event, ending the day’s session with a 1.7% drop at $176.30 that helped push the Dow Jones Industrial Average
DJIA
to a slight daily decline. That’s a larger decline than Apple’s average daily performance on iPhone event days historically, but the past has also shown that shares typically rise between the September announcement and the actual launch of the phones.
Market snapshot: Stocks fall after Apple unveils iPhone 15, with U.S. inflation data looming
Apple’s stock has increased 35.7% so far this year, easily outpacing the 16.9% increase of the S&P 500 index.
SPX
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Federal prosecutors opened a landmark antitrust trial against Alphabet Inc.’s Google on Tuesday with charges the search-engine giant for years intentionally snuffed competition through exclusive contracts with wireless carriers and phone makers.
Google
GOOGL,
GOOG,
spent billions of dollars on such contracts to cement its dominant position, a clear violation of U.S. antitrust law, prosecutors said.
“This case is about the future of the internet, and whether Google’s search engine will ever face meaningful competition,” Justice Department lawyer Kenneth Dintzer told the court. He said Google pays more than $10 billion a year to Apple Inc.
AAPL,
and other companies to ensure Google is the default or only search engine available on browsers and mobile devices used by millions of consumers.
Google’s search business accounted for more than half of the $283 billion in revenue Alphabet recorded in 2022. Search in large part has fueled the company’s $1.7 trillion market valuation.
Google attorney John Schmidtlein countered that companies and consumers use Google’s popular search engine “because it delivers value to them, not because they have to.”
The legal jousting in a Washington, D.C., federal court kicked off what is expected to be a contentious multiweek trial that could be one of the biggest domestic antitrust trials since the federal government tussled with Microsoft Corp.
MSFT,
in the 1990s. Like that case, this one involves arguments over tying together multiple proprietary products.
To that end, Justice Department officials allege Google’s contracts ensure that Android devices come with Google apps and services, including Google search, preinstalled.
Google Chief Executive Sundar Pichai heads a witness list of senior executives and former employees from Google, Apple, Microsoft and Samsung Electronics Co.
005930,
“This feedback loop, this wheel has been turning for 12 years, and it always turns to Google’s advantage,” Dintzer said.
Conversely, Schmidtlein said Apple’s decision to make Google the default search engine in its Safari browser underscores that Google’s search engine is the product consumers prefer. “Apple repeatedly chose Google as the default because Apple believed it was the best experience for its users,” he said.
The Google case “could not be more different” from Microsoft litigation in the late 1990s and early 2000s, Schmidtlein asserted. “The evidence will show that Microsoft’s Bing search engine failed to win customers because Microsoft did not invest [and] did not innovate,” he said. “At every critical juncture, the evidence will show that they were beaten in the market.”
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U.S. stocks closed lower on Tuesday, with the Nasdaq Composite leading the way down, as Apple’s unveiling of its new iPhone and watch failed to boost appetite for equities. The Dow Jones Industrial Average
DJIA,
shed about 16 points, or about 0.1%, to end near 34,647, while the S&P 500 index
SPX,
closed 0.6% lower and the Nasdaq Composite Index
COMP,
slumped 1%, according to preliminary FactSet data. That was the biggest daily percentage drop in about a week for the Nasdaq. Shares of Apple Inc.
AAPL,
were a focus Tuesday as it rolled out a lineup of new consumer products, including its iPhone Pro Max, which will now start at $1,199 instead of $1,099, while its Pro model’s price stays the same. Investors also remain focused on the inflation data, including the release on Wednesday of the consumer-price index for August, before the U.S. stock market’s open. Apple shares fell 1.9% on Tuesday. Climbing bond yields can pressure high-growth stocks as borrowing costs rise. The benchmark 10-year Treasury yield
TMUBMUSD10Y,
edged down 2.4 basis points to 4.263% Tuesday, but was still near its highest level of the year.
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Apple’s AAPL keynote event on Tuesday debuted several new products including the iPhone 15, and the much-anticipated Apple Watch Series 9.
Prices for Apple’s refreshed new watch start at $399 — the same price as the previous watch models when they first debuted.
Among the new features in the Apple Watch Series 9 is a new S9 chip that could…
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Nvidia Stock’s Losing Streak Keeps Going. What Happened to Wall Street’s Darling?
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Stock investors are showing some hesitancy for Tuesday, with big signals on the economy coming this week via consumer prices and retail sales. Ahead of that, Apple is expected to tempt consumers with yet another new iPhone on Tuesday.
How much should investors be worrying right now? Our call of the day from Pershing Square Capital Management manager Bill Ackman says that in the near term, we can relax a little, but it isn’t all roses.
Read: Hedge funds have bailed on the U.S. consumer in a big way, Goldman Sachs data finds
He told the Julia La Roche Show in an interview where he felt like he had a “crystal ball of what was going to happen,” starting in January 2020 with the COVID-19 outbreak, and that carried on through interest rates and the economy. Indeed, the manager reportedly made nearly $4 billion on a couple of pandemic-related bets.
“I would say the crystal ball has clouded a bit in the last period. I think these are unusual economic times and perhaps we always say that, but I don’t think this is a pattern that has been repeated…or it hasn’t been for more than 100 years,” he said.
But he remains near-term upbeat. “For two years, people have been saying that recession’s around the corner and you know we’ve had a very different view, and continue to have this view that I think people are coming around to, that the economy is actually still quite strong,” he said.
And while those on lower-income rungs have burned through a lot of COVID savings, he thinks the economy has yet to really see impact from the big fiscal stimulus seen in recent years.
Looking down the road though, Ackman has got a stack of concerns over the economy. He sees about a third of federal debt due to get repriced meaning that over a relatively short period of time, “interest expense will become a much bigger part of the deficit that is not going to be a contributor to the economy.”
And while higher interest rates do help savers, ultimately that will be a big drag on the economy, he said, adding that rising inflation, mortgage rates, car payments and credit card rates, are all set to slow the economy.
“We’re still in the midst of a war and there’s political uncertainty you know with an upcoming election,” he said. That partly explains Pershing Square’s hedge via a short position on the 30-year Treasury bond
BX:TMUBMUSD30Y
that he laid out in a tweet in early August.
For roughly a year, long-term Treasury yields have been trading below short-dated ones, which is known as an inverted yield curve, a phenomenon that’s often seen as a precursor to recession.
“I don’t see inflation getting back to 2% so quickly, if at all, and if in fact we’re in a world of persistent 3% inflation, you know it doesn’t make sense to have a 4.3%, 4.25% Treasury yield,” he said.
Other risks? Ackman remains worried about regional banks following the spring crisis, as many have big fixed-rate portfolios of assets that have gotten less and less valuable as rates rise. “I would say the commercial real estate picture has not gotten better, if anything, you know, you’re going to start seeing real defaults, particularly with office assets,” he said.
“Regional banks have the most exposure to construction loans so they are going to be a lot of construction loans that won’t be able to repaid. There will be a lot of restructurings, so either the investors groups are gonna have to put in a lot more equity or the banks are going to start taking some losses,” he said.
Ackman says investors also face a presidential campaign that could add some stress. The hedge-fund manager said he’s surprised there have not been “more and better alternative candidates” for the 2024 campaign over President Joe Biden and former President Donald Trump.
He’d like to see JPMorgan Chase & Co. CEO Jamie Dimon toss his hat in the ring and believes Biden is “beatable,” by a strong candidate.
Ackman himself said it’s “possible,” he himself could run someday, but he’s more focused on having a better investment track record over Berkshire Hathaway Chairman and CEO Warren Buffett — and needs some 30 years to match the Oracle of Omaha.
Read: Here’s an easy way to make a more concentrated play on the ‘Magnificent Seven’ stocks
Stock futures
ES00,
NQ00,
are tilting south, led by tech, with Treasury yields
BX:TMUBMUSD02Y
BX:TMUBMUSD10Y
steady to a touch lower and the dollar
DXY
recovering some ground.
Read: Watch this ‘canary in the coal mine’ for signs of trouble in markets, Neuberger Berman CIO says
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
Oracle shares
ORCL,
are down 10% in premarket trading after disappointing guidance from the cloud database group.
Apple’s
AAPL,
big event kicks off at 1 p.m. Eastern, with the launch of the pricier iPhone 15 expected to be on the agenda.
Hot ticket. Arm Holdings’ IPO is already 10 times oversubscribed and bankers will stop taking orders by Tuesday afternoon, Bloomberg reports, citing sources.
Tech’s wild week: How Apple, Google, AI, Arm’s mega IPO could set the agenda for years
Upbeat results are boosting shares of convenience-store operator Casey’s General Stores
CASY,
Packaging giant WestRock
WRK,
and rival Smurfit Kappa
SK3,
have announced a stock and cash tie up. WestRock shares are up 8% in premarket.
Read: U.S. budget deficit will double this year to $2 trillion, excluding student loans
No better than gambling? Amateur investors are piling into 24-hour options.
Demand for oil, coal, gas to peak this decade, IEA chief says
U.S. takes on tech giant Google in landmark case.
Bank of America’s global fund manager survey for September sees investors still bearish, but no longer on the extreme side. Here’s the chart:
Read: Fund managers just made their biggest shift ever into U.S. stocks — and out of emerging markets
These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:
| Ticker | Security name |
|
TSLA, |
Tesla |
|
AMC, |
AMC Entertainment |
|
CGC, |
Canopy Growth |
|
NVDA, |
Nvidia |
|
GME, |
GameStop |
|
AAPL, |
Apple |
|
ACB, |
Aurora Cannabis |
|
NIO, |
Nio |
|
MULN, |
Mullen Automotive |
|
AMZN, |
Amazon |
“Worst investment ever.” Brady Bunch fan buys original house for cut-price $3.2 million.
And the house from the “Halloween” slasher films just sold for $1.8 million.
China may ban clothes that hurt people’s feelings.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.
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Oracle Corp. shares dropped in extended trading Monday after the software company’s revenue forecast for the current quarter fell short of Wall Street expectations.
Oracle
ORCL,
shares, which had been down about 5% after hours when its earnings call started, dropped more than 9% after Oracle Chief Executive Safra Catz forecast its outlook for the quarter.
On the conference call with analysts, Catz forecast second-quarter earnings of $1.30 to $1.34 a share on revenue growth of 5% to 7%, or $12.89 billion to $13.13 billion.
Analysts surveyed by FactSet had estimated earnings of $1.34 a share on revenue of $13.28 billion.
Catz added that if “currency exchange rates remain the same as they are now,” currency should have a 2% positive effect on total revenue and a 3 cent-a-share positive effect on earnings.
Oracle reported fiscal first-quarter net income of $2.42 billion, or 86 cents a share, compared with $1.55 billion, or 56 cents a share, a year ago.
Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.19 a share, compared with $1.03 a share in the year-ago period.
Revenue rose to $12.45 billion from $11.45 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast earnings of $1.15 a share on revenue of $12.57 billion.
Oracle reported cloud services and license support revenue of $9.55 billion, while analysts, on average, had forecast $9.43 billion; and cloud license and on-premise license revenue of $809 million, while the Street expected $967 million.
Hardware revenue came in at $714 million, while analysts expected $748 million; and services revenue was $1.38 billion, while the Street expected $1.43 billion.
Oracle shares finished up 0.3% during Monday’s regular session to close at $126.71.
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Oracle Corp. shares fell in the extended session Monday after the software company reported in-line revenue for the quarter, and earnings were slightly higher than expected.
Oracle
ORCL,
shares fell as much as 5% after hours, following a 0.3% rise in the regular session up to close at $126.71.
Oracle reported fiscal first-quarter net income of $2.42 billion, or 86 cents a share, compared with $1.55 billion, or 56 cents a share, a year ago.
Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.19 a share, compared with $1.03 a share in the year-ago period.
Revenue rose to $12.45 billion from $11.45 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast earnings of $1.15 a share on revenue of $12.45 billion.
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The second week of September, as in the NFL, marks a kickoff of sorts for the tech year.
Headlined by Apple Inc.’s
AAPL,
seminal iPhone event on the second Tuesday of the month at Apple Park, and anchored by Salesforce Inc.’s
CRM,
wildly popular Dreamforce conference up the road in San Francisco, these several days set a tempo as well as establish a road map for the industry over the next 12 months. They also open the floodgates on tech conference season, with shows stacked up over the next several weeks for Facebook parent Meta Platforms Inc.
META,
Microsoft Corp.
MSFT,
and Oracle Corp.
ORCL,
Oh, and there’s that initial public offering from Arm Holdings Plc, the chip designer owned by SoftBank Group Corp.
9984,
that is expected to value Arm at $50 billion to $54.5 billion on a fully diluted basis. Another IPO candidate, delivery startup Instacart, also plans a public offering that would value it at $7.5 billion. Both deals could jump-start what has been a somnolent tech IPO market the past few years.
For that reason alone, this jam-packed tech week might hold even more import, and consequences, than previous years. A confluence of legal tussles, macroeconomic conditions, a trade war with China, and regulatory bluster have raised the stakes.
“It’s a tale of two cities with this week’s events highlighting both the issues and opportunities in tech,” Silicon Valley analyst Maribel Lopez said in an interview, assessing the week. “Arm’s IPO showcases the strength of tech and AI at a time when the AI forum and Google-DoJ shine a light on the concern that a few companies are wielding tremendous power for the future of the world.”
Consider: Hours before Apple is expected to unveil a new crop of iPhones more noteworthy for pricing than features, Alphabet Inc.’s
GOOGL,
GOOG,
Google faces off with the Justice Department in a federal court in Washington, D.C.
Justice Department officials argue that Google illegally leveraged agreements with phone makers such as Apple and Samsung Electronics Co.
005930,
and with internet browsers like Mozilla to be the default search engine for their customers, thus preventing smaller rivals from gaining access to that business.
“This is a backwards-looking case at a time of unprecedented innovation, including breakthroughs in AI, new apps and new services, all of which are creating more competition and more options for people than ever before,” Google General Counsel Kent Walker said in a statement.
The following day, Wednesday, Senate Majority Leader Chuck Schumer, D-N.Y., convenes an all-star panel of CEOs from Meta, Microsoft, Google, OpenAI and Palantir Technologies Inc.
PLTR,
As lawmakers ruminate on how to harness AI responsibly, bipartisan legislation is in the works. Sens. Richard Blumenthal, D-Conn., and Josh Hawley, R-Mo., are among those crafting a bill.
Even Apple and Salesforce aren’t immune from recent events: Apple has endured a relatively rough patch of disappointing (for them) revenue and iPhone sales while balancing risk/reward with its huge investment in China, and Salesforce CEO Marc Benioff has threatened to relocate Dreamforce to Las Vegas after more than two decades in his hometown of San Francisco if drug use and homelessness disrupt this year’s event.
The most pressing concern, when all is said and done, is AI — which hovers like the Death Star over the tech landscape.
“The biggest concern is the forum is behind closed doors, which could lead to regulatory capture, where dominant players in the industry help influence the regulations being imposed,” Kimberlee Josephson, associate professor of business administration at Lebanon Valley College (Pa.), said in an interview. “It’s almost as if it puts them in the hot while giving them a seat at the table at the same time.”
“At the very least, it sends the signal that something is being done,” she said. “Antitrust cases are so subjective. What constitutes barriers to entry? DoJ adds a level of seriousness.”
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Investors in index funds have been well rewarded by a high concentration in the largest technology companies over the past decade. But there are also continuing warnings about the risk of such heavy concentrations, even in index funds that track the S&P 500. Solutions are offered to limit this risk, but if you expect Big Tech to continue to drive the broad market returns over the coming years, why not make an even more focused bet?
Comparisons of three index-fund approaches highlight how successful concentration in the “Magnificent Seven” has been.
The Magnificent Seven are Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Nvidia Corp.
NVDA,
Amazon.com Inc.
AMZN,
Alphabet Inc.
GOOGL,
GOOG,
Tesla Inc.
TSLA,
and Meta Platforms Inc.
META,
We have listed them in the order of their concentration within the Invesco S&P 500 ETF Trust
SPY,
which tracks the S&P 500
SPX.
The U.S. benchmark index is weighted by market capitalization, as is the Nasdaq Composite Index
COMP
and the Russell indexes.
SPY is 27.6% concentrated in the Magnificent Seven. One way to play the same group of 500 stocks but eliminate concentration risk is to take an equal-weighted approach to the index, which has worked well for certain long periods. But here, we’re focusing on how well the concentrated strategy has worked.
Let’s take a look at the group’s concentration in three popular index approaches, then look at long-term performance and consider what happened in 2022 as rising interest rates helped crush the tech sector.
Here are the portfolio weightings for the Magnificent Seven in SPY, along with those of the Invesco QQQ Trust
QQQ,
which tracks the Nasdaq-100 Index
NDX
and the Invesco S&P 500 Top 50 ETF
XLG
:
| Company | Ticker | % of SPY | % of QQQ | % of XLG |
| Apple Inc. |
AAPL, |
7.05% | 10.85% | 12.46% |
| Microsoft Cor. |
MSFT, |
6.65% | 9.53% | 11.76% |
| Amazon.com Inc. |
AMZN, |
3.30% | 5.50% | 5.84% |
| Nvidia Corp. |
NVDA, |
3.02% | 4.44% | 5.33% |
| Alphabet Inc. Class A |
GOOGL, |
2.17% | 3.12% | 3.83% |
| Alphabet Inc. Class C |
GOOG, |
1.88% | 3.11% | 3.32% |
| Tesla Inc. |
TSLA, |
1.79% | 3.10% | 3.17% |
| Meta Platforms Inc. Class A |
META, |
1.77% | 3.60% | 3.12% |
| Totals | 27.63% | 43.25% | 48.83% | |
| Sources: Invesco Ltd., State Street Corp. | ||||
The same group of seven companies (eight stocks with two common share classes for Alphabet) is at the top of each exchange-traded fund’s portfolio, although the top seven for QQQ aren’t in the same order as those for SPY and XLG. QQQ’s weighting was changed recently as the underlying Nasdaq-100 underwent a “special rebalancing” last month.
Here’s a five-year chart comparing the performance of the three approaches. All returns in this article include reinvested dividends.
QQQ has been the clear winner for five years, but it is also worth noting how well XLG has performed when compared with SPY. This “top 50” approach to the S&P 500 incorporates many stocks that aren’t listed on the Nasdaq and therefore cannot be included in QQQ, which itself is made up of the largest 100 nonfinancial companies in the full Nasdaq Composite Index
COMP,
Examples of stocks held by XLG that aren’t held by QQQ include such non-tech stalwarts as Berkshire Hathaway Inc.
BRK.B,
Johnson & Johnson
JNJ,
Procter & Gamble Co.
PG,
Home Depot Inc.
HD,
and Nike Inc.
NKE,
Now let’s go deeper into long-term performance. First, here are the total returns for various time periods:
| ETF | 3 Years | 5 Years | 10 Years | 15 Years | 20 Years |
|
SPDR S&P 500 ETF Trust SPY |
40% | 69% | 223% | 370% | 531% |
|
Invesco QQQ Trust QQQ |
41% | 113% | 430% | 882% | 1,158% |
|
Invesco S&P 500 Top 50 ETF XLG |
41% | 85% | 262% | 404% | N/A |
| Source: FactSet | |||||
Click on the tickers for more about each ETF, company or index.
There is no 20-year return for XLG because this ETF was established in 2005.
For five years and longer, QQQ has been the runaway leader, but for 5, 10 and 15 years, XLG has also beaten SPY handily, with broader industry exposure.
Something else to consider is that during 2022, when SPY was down 18.2%, XLG fell 24.3% and QQQ dropped 32.6%.
For disciplined long-term investors, the tech pain of 2022 may not seem to have been a small price to pay for outperformance. And it may have been easier to take the pounding when holding SPY or even XLG that year.
Here’s a look at the average annual returns for the three ETFs:
| ETF | 3 years | 5 years | 10 years | 15 years | 20 years |
|
SPDR S&P 500 ETF Trust SPY |
11.8% | 11.0% | 12.4% | 10.9% | 9.6% |
|
Invesco QQQ Trust QQQ |
12.0% | 16.3% | 18.2% | 16.4% | 13.5% |
|
Invesco S&P 500 Top 50 ETF XLG |
12.2% | 13.1% | 13.7% | 11.4% | N/A |
| Source: FactSet | |||||
So the question remains — do you believe that the largest technology companies will continue to lead the stock market for the next decade at least? If so, a more concentrated index approach may be for you, provided you can withstand the urge to sell into a declining market, such as the one we experienced last year.
Here is something else to keep in mind. In a note to clients on Monday, Doug Peta, the chief U.S. investment strategist at BCA, made a fascinating point: “The only novel development is that all the heaviest hitters now hail from Tech and Tech-adjacent sectors and are therefore more prone to move together than they were at the end of 2004, when the seven largest stocks came from six different sectors. “
Nothing lasts forever. Peta continued by suggesting that investors who are tired of big tech taking all the glory “need only wait.”
“[I]f history is any guide, their time at the top of the capitalization scale will be short,” he wrote.
Don’t miss: These four Dow stocks take top prizes for dividend growth
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The fortunes of
Apple
the world’s largest public company, have a tendency to lead around much of the rest of the stock market. After the tech giant’s woes contributed to widespread declines last week, investors can now breath…
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For Apple fans, it’s almost that time of year again.
The company is expected to launch the iPhone 15 at an event Tuesday, but don’t get too excited about the new phone. This year, the biggest change from Apple
AAPL,
could be the iPhone’s price.
Apple tends to introduce new iPhones every year in the fall, and lately, the company has been keeping prices the same even as it upgrades the technology. That may not be the case this year, though, with some thinking that Apple could boost the price of its Pro-level models by $100 or $200 compared with what an iPhone 14 Pro currently sells for.
That’s notable because iPhones are already pretty expensive, with the cheapest iPhone 14 Pro option selling for $999 and the priciest iPhone 14 Pro Max configuration going for $1,599.
“Given the popularity of the iPhone 14 Pro models compared to the iPhone 14 models, Apple may believe consumers will be willing to pay more without much fuss,” Monness, Crespi, Hardt & Co. analyst Brian White wrote in a recent report. “Moreover, Apple may feel a price hike is warranted given the inflationary forces that have disrupted the economy over the past couple of years.”
Morgan Stanley’s Erik Woodring is less certain that Apple will hike prices broadly. The company could boost the price of its Pro Max phone by $150 to account for an expected new rear-facing periscope lens, but it’s “very un-Apple-like to raise prices across the board in the midst of a smartphone market down 11%,” he wrote. He said he expects the company to keep prices the same on the regular Pro model and its two base-level options.
One key issue for iPhone enthusiasts — and Apple investors — is when the new phones will be ready for sale. Most of the iPhone models Apple introduced last year hit stores in mid-September, but there are some concerns about potential production delays this year.
Read: Waiting for the iPhone 15? You might have to hold out longer than you think.
“The broad availability of the iPhone 15 Pro Max could be October given some manufacturing challenges,” BofA Securities analyst Wamsi Mohan wrote recently.
iPhone feature updates have become more incremental in recent years, and Apple watchers aren’t expecting anything groundbreaking this time around either. New iPhones always tend to be a little faster than their predecessors, and this year’s models might charge more quickly too. There’s a catch, though, as Apple is expected to switch out its proprietary Lightning cable for the more universal USB-C cord.
While the Pro models get a lot of attention, White said that those looking to buy base-level models could see some enhancements. Reports “have highlighted the potential for the iPhone 15 and iPhone 15 Plus to be graced with certain features found on last year’s more expensive Pro models, including the A16 chip, Dynamic Island, and a 48-megapixel camera,” he wrote.
Why go Pro? Apple could move to a titanium frame from its prior stainless-steel casing and make camera enhancements. Mohan highlighted the potential for a periscope-type telephoto lens on Max versions.
Apple fans “should also see more casing quality color differentiation between the Pro and regular series to help drive vanity switchers to the higher-priced models,” Jefferies analyst Andrew Uerkwitz wrote recently.
There could be a dark blue color option for the iPhone Pro line this year, for example, according to 9to5Mac. That said, those content with the base-level model might be enticed by a pink version of that phone, with 9to5Mac noting that that’s one of several rumored pastel color options.
Read: Here’s why Wall Street may be overreacting about Apple’s China’s challenges
Apple is also expected to refresh its Apple Watch lineup at Tuesday’s event. Bloomberg News has reported that the Apple Watch Series 9 could feature a faster processor, though it will have the same general design as past models. Apple is also expected to keep the look the same on an upgraded version of its Ultra Watch, and that might come in a black color option.
The event kicks off at 1 p.m. Eastern time Tuesday and will be available for live viewing on Apple’s site.
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Talking about AI alone has been pixie dust for big technology stocks this year. And as executives look for any way to shoehorn AI into their business plans, more S&P 500 index companies during their second quarter earnings calls mentioned “AI” than at any point since at least 2010, according to a report published on Friday.
What’s more, according to the report from FactSet, the companies talking about AI — even the ones that aren’t the big, obvious tech names — have seen their stocks fare better than shares of companies that haven’t.
For S&P 500 companies that mentioned “AI” on their second-quarter earnings calls, shares on average since June 30 dipped 0.8%, while rising 13.3% since Dec. 31, FactSet said. For companies that didn’t talk about AI on those calls, shares on average fell a bit more since the end of June — 2.3% — while inching only 1.5% higher since the end of last year.
“Even excluding the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla), the S&P 500 companies that cited ‘AI’ still outperformed the S&P 500 companies that did not cite ‘AI’ on average during these periods,” FactSet Senior Earnings Analyst John Butters said in the report.
Meanwhile, Wall Street has long believed corporate America’s profits would rebound for the second half of 2023, after a year ruled by anxieties over inflation’s impact on the economy. Still, that collective bounce-back, as it has through this year, will hinge on strong results from the world’s biggest tech players.
Wall Street analysts expect S&P 500 companies to eke out a 0.5% gain in per-share profit growth during the third quarter, according to the FactSet report. If that number holds, it would be the first quarter of earnings growth since the third quarter of last year.
Those potential gains, however, will largely depend on results from Amazon.com Inc.
AMZN,
Meta Platforms Inc.
META,
and Alphabet Inc.
GOOG,
GOOGL,
— outsized companies with outsized influence on markets and S&P 500 company financials overall. Financials for those companies have rebounded this year, after big tech retrenched amid a drop-off in pandemic-related digital demand from people spending more time at home and online.
Three years of supply disruptions have upended the economy and driven prices higher, forcing the Federal Reserve to embark on a delicate effort to bring them lower by discouraging borrowing and spending through a series of interest-rate hikes. But what about the impact on bowling? For answers, we turn to results this week from bowling-alley chain Bowlero Corp.
BOWL,
which saw a jump in demand following the economy’s reopening but now faces questions about that demand as it shows signs of returning to Earth. Convenience-store chain Casey’s General Stores Inc.
CASY,
and homebuilder Lennar Corp.
LEN,
also report.
Adobe results: Digital-media, analytics and design firm Adobe Inc. reports quarterly results on Thursday. But Mizuho analyst Gregg Moskowitz said his focus was on the company’s broader digital transformation.
He cited stronger Web traffic, the potential for more deals with bigger customers, signs of improving trends in Adobe’s
ADBE,
analytics segment, as well as the segment that includes design tools like Photoshop. But he said the company’s moves in generative AI could be “a significant growth driver.” Adobe this year unveiled Firefly, an AI image and text-enhancement model that can be incorporated into Adobe’s software. Moskowitz said that “while very early, our checks indicate an already high level of large customer interest in GenAI projects, including Firefly for Enterprise.” However, he said the company’s $20 billion acquisition of online design platform Figma was still “a big question mark,” as costs and regulatory scrutiny accumulate.
Oracle results, supply situation: Cloud and IT-network developer Oracle Corp.
ORCL,
reports results on Monday. Like much of the tech world, Wall Street sees the company as an AI play. But UBS analysts said that as businesses race to secure the components that power AI, Oracle could have an “underappreciated edge” over rivals.
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A storied part of the White House complex — the Situation Room — has emerged from a $50 million makeover, with President Joe Biden taking part in a ribbon-cutting ceremony earlier this week to mark the occasion.
The White House Situation Room is actually a highly secure complex of rooms on the West Wing’s ground floor, including a reception area, a main conference room known as the “JFK room,” a smaller conference room, breakout rooms and a 24-7 operations center called the “watch floor.”
The operations room is shown in the photo above, while the main conference room is shown in the photo below.
White House handout
Biden shared a video on Friday that shows the ribbon-cutting ceremony and his tour of the revamped facility, writing in a post on X, formerly known as Twitter, that it’s “incredible.”
The renovation involved digging five feet underground to make more room and install cutting-edge technology allowing White House officials to bring together intelligence from different agencies with the push of a few buttons. The goal is to never need a complete renovation again, as now panels can be removed and updated and new technology swapped in.
The Situation Room’s yearlong renovation came up in July when cocaine was found in a heavily traveled part of West Wing. Biden’s national security adviser, Jake Sullivan, criticized what he described as “questionable reporting” on the room’s connection to the incident.
“The Situation Room is not in use and has not been in use for months because it is currently under construction. We are using an alternate Situation Room in the Eisenhower Executive Office Building,” Sullivan told reporters in July. “There was no issue with the Situation Room relative to this. “
The Associated Press contributed to this report.
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“Super apps” have never truly existed in the United States, and it is apparent at this point that they never will.
That isn’t stopping some executives and investment analysts from still dreaming of becoming one-stop shops for their users’ needs, something only a small handful of apps in Asia have managed to do. The most prominent is Elon Musk, the Tesla Inc. TSLAchief executive who purchased Twitter last year and has proclaimed that he will turn it into an “everything app” called X that resembles super apps in China.
“I…
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Apple Inc. shares sold off for the second session in a row Thursday amid swirling concerns about the company’s China business, but some analysts say those fears may be overblown.
The Wall Street Journal reported earlier this week that China was banning government officials from using iPhones for work purposes, while Bloomberg News reported that the ban could ultimately extend to government-backed agencies and state companies. The question for investors is whether the issue will be limited to state-affiliated employees in…
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Nvidia Corp.’s revenue doubled while its cost of goods barely crept up, so there must be something fishy, right? A company is using their Nvidia graphics processing chips as collateral for billions in loans — that doesn’t sound right, does it?
As Nvidia NVDA shares fell 3.1% to close at $470.61 on Wednesday, Bernstein analyst Stacy Rasgon must have been hearing from clients all day who were worried after reading the most recent conspiracy theory on why Nvidia’s 222% year-to-date stock gain must somehow be fixed.
“Recently…
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