Market concentration rises, but Goldman sees no repeat of 1990s tech bubble

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Concerns have emerged among investors that the heavily weighted Magnificent Seven tech and AI-focused companies could signal an overheated market. However, Goldman Sachs cautioned that while valuations are elevated, they do not currently match the extremes seen during prior market bubbles.

According to the bank’s analysis, the median 24-month forward price-to-earnings (P/E) ratio across the seven companies stands at 27x, or 26x when excluding Tesla, which carries a significantly higher multiple than its peers. By comparison, the largest seven companies at the peak of the late-1990s tech bubble traded at roughly double these valuations.

Goldman Sachs emphasized that while the market’s attention on a concentrated group of dominant firms may resemble historical patterns, the current financial landscape differs materially.

“So it is true that valuations are high but, in our view, generally not at levels that are as high as are typically seen at the height of a financial bubble,” the firm said.

The findings suggest that despite concerns about concentration risk, investors may not need to assume the market is on the verge of a collapse akin to prior bubble periods.

Ranked below are the Magnificent Seven according to Seeking Alpha’s Quant metrics:

No. 1: Amazon (AMZN [https://seekingalpha.com/symbol/AMZN]), quant grade of 4.96

No. 2: Alphabet (GOOG [https://seekingalpha.com/symbol/GOOG])(GOOGL [https://seekingalpha.com/symbol/GOOGL]), quant grade of 3.48.

No. 3: Nvidia (NVDA [https://seekingalpha.com/symbol/NVDA]), quant grade of 3.48.

No. 4: Microsoft (MSFT [https://seekingalpha.com/symbol/MSFT]), quant grade of 3.47.

No. 5: Meta Platforms (META [https://seekingalpha.com/symbol/META]), quant grade of 3.47.

No. 6: Apple (AAPL [https://seekingalpha.com/symbol/AAPL]), quant grade of 3.46.

No. 7: Tesla (TSLA [https://seekingalpha.com/symbol/TSLA]), quant grade of 3.34.

MAGNIFICENT SEVEN ETFS: (BATS:MAGS [https://seekingalpha.com/symbol/MAGS]) (BATS:MAGX [https://seekingalpha.com/symbol/MAGX]) (NYSEARCA:QQQU [https://seekingalpha.com/symbol/QQQU]) and (NYSEARCA:QQQD [https://seekingalpha.com/symbol/QQQD]).

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