Weekly Update: Goodbye Magnificent 7, Hello BATMMAAN
Good evening, and welcome to this week’s edition of Stealth Trades!
As we come to the end of another year in the stock market (a fantastic one at that), it is important to look for new themes developing.
For the last two years, we have been hearing about the Magnificent 7. These seven stocks – Meta, Nvidia, Amazon, Alphabet, Apple, Microsoft and Tesla – have been the driving force behind much of this bull market.
The Mag 7 is the successor of the FAANG stocks – Facebook, Amazon, Apple, Netflix and Google (now Alphabet) – that led the 2009-2020 bull market.
But a new gang is in town…
Thanks to the dominance of AI companies and the massive sales and earnings growth of those leading the charge, a new group of stocks has come to the forefront.
They are called BATMMAAN.
As the tradition goes, each letter represents a name of one of these stocks:
Broadcom
Apple
Tesla
Microsoft
Meta Platforms
Amazon
Alphabet
Nvidia
This stuttering Batman represents the leading mega-cap stocks in the market today.
In actuality, it is just the Magnificent 7 with the addition of Broadcom (AVGO) which shot up 25% on Friday after reporting a 220% increase in AI revenue. This makes Broadcom the 8th company to join the exclusive $1 trillion market cap club.
It may not be a household name like Apple or Microsoft, but Broadcom is quickly becoming an investor favorite thanks to booming demand for its generative-AI infrastructure.
These 8 stocks represent a collective $19 trillion of market value.
To put that in perspective, this is more than the value of the entire U.S. stock market in 2012.
Today, the U.S. equities market has a total value of $55 trillion. The top 500 companies are worth $48 trillion. And these 8 juggernauts make up almost 40% of that.
These numbers are truly mind-boggling. But as more and more investors turn to passive investing via ETFs and index funds, I expect to see this outsized concentration at the top get even more extreme, not less.
Eventually, these giants will be broken up by antitrust laws.
The last major monopoly breakup took place in 1982 with AT&T. Its dominance prevented new competition from entering the market. The company was divested into seven smaller regional companies – NYNEX, Bell Atlantic, Ameritech, BellSouth, Southwestern Bell, US West and Pacific Telesis.
Before that it was Andrew Carnegie’s Steel Company then John D. Rockefeller’s Standard Oil. Today we have ExxonMobil, Chevron, Texaco, Marathon, BP, and ConocoPhillips, but these were all once a part of Standard Oil.
Today, Amazon owns online retail. 40 cents of every dollar spent buying anything online is spent at Amazon.
Google completely dominates the search game with a 90% market share.
And Meta has a 77% market share in the social media industry through Facebook, Instagram, WhatsApp and Messenger.
While I do not see it happening in the next five years, I can envision an anti-monopoly movement sweeping through D.C. that would require all of these giants to spin off their business.
Now don’t get me wrong… I’m no left-wing populist. No one should be punished for building a great business.
But investors almost never lose in a spinoff. In fact, they usually prosper. For many of these companies, they actually trade for less than the sum of their parts. Rockefeller became even wealthier after the Standard Oil breakup.
Smaller companies are more nimble and often more innovative. They often trade at higher multiples of earnings thanks to faster growth and a sharper focus on their core product or service.
I will always pull for the underdog. Given the choice between two similar stocks, I will always pick the smaller, younger company. But the big dollars behind multi-trillion-dollar asset managers like BlackRock will continue to favor mega-cap names like BATMMAAN out of necessity. And that could lead to many more companies on the trillion-dollar list.
Best wishes for your trading,
