Making sense of market moves
Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.
Watching Nvidia soar quadruple digits in only a few years, along with its king nerd Jensen Huang assuming rockstar status, would lead anyone to ask the question: Have AI tech stocks finally gotten too hot?
The AI stock rally over the past two years bears an eerie resemblance to the dot com boom of the late 1990s—and we all know how that story ended.
While few analysts think that AI is all hype, it's undeniable that a few of the key tech stocks that have ridden the wave of machine learning are overvalued.
“The dominance of Magnificent Seven (Mag 7) tech stocks could give way to new market dynamics in 2025 as valuations diverge, geopolitical uncertainty grows, and policymakers focus on balancing inflation and growth,” explained Marc Pinto, Head of Americas Equities at Janus Henderson, in a note.
But analysts are expecting the great Mag 7 reckoning to be more of a lackluster lag, not a complete implosion of the sector à la the dot-com bust.
The big picture: David Kostin, Goldman Sachs’s chief US equity strategist, pointed out in a recent note that the Mag 7 is unlikely to sustain the level of growth it has enjoyed over the past two years. The Mag 7’s “premium return gap,” which is the percentage that the group of stocks outperforms others in the S&P 500 index, was 62% in 2023, 22% this year so far, but is projected to be only 7% in 2025, according to Kostin. That’s still an outperformance, but not by the same huge margins we’ve seen.
The breakdown
- Nvidia: The majority of analysts covering the stock still have a “buy” rating on it. The average price target set on the stock is $173—about 23% higher than shares trade today.
- Microsoft: The analyst consensus for Microsoft is a “buy” rating, with an average price target of $505, 15% higher than shares trade now.
- Alphabet: Analysts also overwhelmingly have a “buy” rating on Alphabet stock, with its average price target of $210—7% higher than shares trade today.
- Meta Platforms: The majority of analysts covering Meta have a “buy” rating on the stock, and its average price target is $657, 8% higher than shares trade now.
- Amazon: The vast majority of analysts have a “buy” rating on Amazon stock, with an average price target of $238—only 4% higher than today's price.
- Apple: While the analysts consensus on Apple stock is still “overweight,” its average price target is $244, 5% lower than where shares are trading now.
- Tesla: Overall, analysts are the most bearish on Tesla—its consensus rating among analysts who cover the stock is “hold,” and analysts have an average price target of $296, 35% lower than where shares trade now.—LB