Goldman Sachs: US tech giants will continue to lead the S&P 500 in 2024.

Zhitong App has learned that Goldman Sachs predicts that the seven tech giants in the US stock market will continue to outperform the other 493 stocks in the S&P 500 index by 2024. David Kostin of Goldman Sachs stated in a report last month, "Our baseline forecast suggests that large-cap tech stocks will continue to outperform other stocks in the S&P 500 index in 2024."

The so-called seven tech giants refer to Apple (AAPL.US), Amazon (AMZN.US), Google (GOOGL.US), Meta (META.US), Microsoft (MSFT.US), Tesla (TSLA.US), and NVIDIA, which accounted for 76% of the over 20% increase in the S&P 500 index in 2023.

Among them, NVIDIA has seen a growth of over 200% so far this year, and even the world's largest company, Apple, has seen its stock price soar by nearly 50% this year. The combined market value of these seven companies has reached $11.5 trillion.

Due to the extremely concentrated gains in the stock market this year, bearish investors are highly alert. However, Goldman Sachs is not worried and expects the gains to continue. The reasons are as follows:

1. Better fundamentals

Compared to the other 493 stocks downstream of the S&P 500 index, these seven large-cap tech stocks have more attractive fundamentals. They have faster growth rates, higher profit margins, clearer balance sheets, and reasonable valuations relative to the market.

Kostin stated, "Analysts expect that by 2025, the sales of large-cap tech companies will grow at a compound annual growth rate of 11%, while other companies in the S&P 500 index are only expected to grow at 3%. The net profit margin of the seven giants is twice that of the rest of the index, and market expectations are that this gap will continue until 2025."

Although these tech stocks have higher price-to-earnings ratios, considering their growth, they are actually in line with the rest of the market.

Kostin said, "On an earnings-weighted basis, the seven giants' long-term expected earnings growth is 8 percentage points higher than the median of the S&P 500 index (+17% vs. +9%). When calculating the price-to-earnings growth (PEG) ratio, the relative valuation is consistent with the 10-year average level."

1. Significant decline of large-cap tech stocks in 2022

The strong performance of large-cap tech stocks this year comes from the tough year of 2022 when many stocks were severely punished by investors. From the peak, Meta fell by over 70%, NVIDIA fell by over 60%, and Amazon's stock price was halved in 2022.

Therefore, Kostin believes that this year's strong rebound trend is relatively normal.

Kostin stated, "The dominance of large-cap tech stocks in 2023 largely reflects the significant underperformance in 2022." He added that this group of tech stocks fell by 39% last year. 3. The historical performance of the top seven S&P 500 stocks cannot predict the future.

Kostin pointed out that this year, the performance of the seven major tech stocks was 30 percentage points higher than the 493 stocks below the S&P 500 index, making it the second-largest annual difference since 1970.

However, historical analysis shows that there is no reliable historical relationship between the performance of the top seven stocks and the other 493 stocks in the past and future 12 months.

Kostin said, "Although the impressive magnitude of their outperformance in the past year is remarkable, it is not a reliable indicator to predict their performance relative to other stocks in the index in the coming year."

For example, in 1999, the top 7 stocks performed strongly, but then performed poorly in 2000. Similarly, after performing exceptionally well in 2020, they continued to perform well in 2021.