Tesla shares: after a fall in prices, there is a risk of relegation from the “Magnificient Seven” on the US stock market

Enlarge image

There were only six left:

Tesla boss

Elon Musk

in the Gigafactory in Grünheide

Photo: Christian Marquard / EPA

A price jump of 20 percent drove the shares of Facebook parent company

Meta

to a record high on Friday. The online retail giant

Amazon

(up 10 percent on Friday) is also trading just below record levels. The software giant

Microsoft

(plus 10 percent since the beginning of the year) and chip manufacturer

Nvidia

(30 percent plus since the beginning of the year) are reporting highs almost on weekdays anyway. With a market value of $3.1 trillion, Microsoft is now the most valuable company in the world.

Google parent

Alphabet

is now also scratching its record level again. Investors, it seems, are buying the highly traded Big Tech stocks from the USA, the so-called “Magnificient Seven”, as if obsessively.

Latecomer Apple

All? Not all.

Apple

is one of the two laggards in the “magnificent seven” group. The iPhone group is suffering from difficult business in China and the share price has fallen below the $3 trillion mark again. Concerns at a high level.

But the situation looks much more difficult for the former stock market darling

Tesla

: The US car manufacturer's shares have lost 25 percent of their market value since the beginning of the year. Since reaching a record high of around $400 at the end of 2021, the share price has now more than halved.

While the pure technology stocks among the “Magnificient Seven” are being carried from one high to the next by the euphoria surrounding artificial intelligence (AI), the auto industry is facing rather difficult years: growing competition from China (BYD) and European car manufacturers are forcing them to catch up Tesla in a brutal price war. For many investors

, Tesla boss

Elon Musk

(53) is no longer seen as a savior, but rather as a potential burden. To many, the “disruptor” Tesla appears to have arrived in the gray everyday life of mass car manufacturers, where they are exposed to the ups and downs of the economy and have to fight for every percent margin.

Rising credit costs and falling government subsidies for electric cars are putting additional strain on Tesla: To make matters worse, the Tesla chart formed a “death cross” this week, a sign that chart technicians interpreted as a harbinger of further possible losses. The “death cross” occurs when the 50-day moving average falls below the 200-day moving average.

Farewell to the elite group – will Broadcom soon take Tesla’s place?

But even if you dismiss the chart technology as a gimmick: Tesla is threatened with relegation from the elite group due to its rapid decline in price. At the end of 2023, the Magnificient Seven reached a share of almost 28 percent in the S&P 500, with the remaining 72 percent of the market value distributed among the remaining 493 US companies. Since then, the stock market value and thus the weight of the seven top stocks has continued to rise: the share is now almost 29 percent. Never before has the influence of a single group been so high. Anyone who invests $1,000 in an ETF on the S&P 500 is buying into the great seven with just under $300. If Tesla hadn't come under fire in the past few months, the rise in the S&P 500 would have been even stronger.

“We’re actually talking about the Magnificient Six,”

Brandon Michael

, senior investment analyst at ABC Funds, told Reuters. According to Reuters, numerous institutional investors are already looking for a successor to Tesla in the top group: It should be a company that is able to quickly monetize the booming demand for artificial intelligence. Michael brings the chip manufacturer Broadcom into play as a possible successor to Tesla: Broadcom has a good chance of catching up with market leader Nvidia and producing customer-specific superchips for AI applications. Nvidia's competitors also include the chip manufacturer AMD, whose market value more than doubled in 2023.

“The question is not just which companies are using AI, but which companies will monetize the new AI applications in the near future,” said

Art Hogan

, chief market strategist at B Riley Wealth. And with this question, the Facebook company Meta, which has already been declared dead, comes into play again: Meta boss Mark Zuckerberg is investing billions in the “Metaverse” and thus also in artificial intelligence. The bet is that in the future users will pay to immerse themselves in Meta's artificial worlds. The group announced on Friday that it would pay a dividend for the first time in the company's history, triggering the price jump.

Meta doesn’t have to worry about her place among the “Magnificent Seven” for the time being. Even when Meta was still called Facebook, the company belonged to the popular “FANG” group (Facebook, Amazon, Netflix and Google), which was later renamed “FAANG” to include Apple.

Since Wall Street turned to the 1960 Hollywood classic to better market its favorite stocks, the title no longer needs to be changed as often: The Magnificent Seven remains great even when the party is with AMD or Broadcom and continues without Tesla.

la/Reuters