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(Bloomberg) -- The high-flying technology behemoths responsible for more than half of the S&P 500 Index’s 23% leap last year will likely struggle to dominate the market in 2025 as earnings growth decelerates.
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Slowing profits “may surprise some of the die hards who are betting on these very high double-digit earnings numbers,” Lisa Shalett, chief investment officer for Morgan Stanley’s wealth management unit, said Thursday in an interview on Bloomberg Television. “This idea that they as a group can trade together and lead the market may falter in 2025.”
The so-called Magnificent Seven stocks — Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — are expected to post a combined earnings increase of 18% this year, down from a projected 34% for 2024, according to data compiled by Bloomberg Intelligence.
This may explain why investors are growing increasingly wary of the group. The Bloomberg Magnificent Seven Total Return Index is on track for its fourth straight session with a decline of at least 1%, the longest losing streak of this magnitude since 2022. The gauge has never posted five consecutive days with a loss of 1% or more.
Shalett expects traders to get more selective about buying megacap tech stocks in 2025 and start differentiating between the names to pick winners.
“We are getting to a part of the cycle where differences in individual company exposures is really going to make a difference,” she said, “whether we’re talking about different exposures to the AI growth story itself, whether we’re talking about exposure to antitrust risks, more recently we’ve had to talk about exposure to a very strong dollar.”
Shalett isn’t alone among Wall Street pros who see an end to the Magnificent Seven’s run. At Bank of America Corp., Savita Subramanian warned that growth expectations for the group have approached all-time highs, just when their earnings are slated to decelerate. And firms ranging from Goldman Sachs Group Inc. to Citigroup Inc. have urged clients to diversify away from the tech giants.
The key to 2025, according to Shalett, is “having realistic expectations” and “picking stocks” among the rest of the S&P 500.
“I think what we have to watch out for is where some of the disappointments may be,” she said. “And our best guess is that the disappointments are going to land in the places where some of the enthusiasm has been most robust.”