The “Magnificent Seven” Have a Combined Market Cap of Just Under $23 Trillion. Is Now the Time to Diversify Outside of Tech?
The “Magnificent Seven” stocks have been rising in value in recent weeks, as excitement has returned to tech and artificial intelligence (AI) stocks in particular. The Roundhill Magnificent Seven ETF (MAGS +0.15%) is up over 15% in just the past month. Today, the combined value of the Magnificent Seven stocks is nearly $23 trillion, with Nvidia and its $4.8 trillion valuation leading the way. That’s more than one-third of the S&P 500‘s total market cap.
While it may be tempting to jump on the bandwagon and profit from potential gains due to AI, there’s also the risk of another steep correction in tech being around the corner. Is it still a good idea to invest in tech stocks, or should you consider diversifying to minimize your overall exposure?
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Tech stocks are expensive right now
When the Magnificent Seven stocks are hot buys, that generally brings up the entire tech sector along for the ride. The Technology Select Sector SPDR ETF gives investors exposure to the tech stocks within the S&P 500, and it’s averaging a price-to-earnings (P/E) ratio of just under 37 right now. By comparison, the overall S&P 500 average P/E multiple is only 26.
It’s important, however, to note that not all tech stocks are equally overvalued. Some are at much more astronomical levels than others. The obvious examples are Tesla and Palantir Technologies, which trade at P/E multiples of 360 and 235, respectively.
There are decently valued tech stocks within even the Magnificent Seven, but by and large, tech stocks are generally expensive right now.
Roundhill Magnificent Seven ETF
Today’s Change
(0.15%) $0.10
Current Price
$66.97
Key Data Points
Day’s Range
$66.38 – $67.24
52wk Range
$46.27 – $69.14
Volume
2.9M
You can easily diversify your portfolio, and still have a strong position in tech
Even if you love the Magnificent Seven and tech stocks in general, you may want to consider reducing some risk right now. The iShares Russell 2000 Growth ETF is one attractive option, as it invests in small public companies with above-average earnings prospects, which may offer more long-term upside, given the fund’s average P/E of 26.
The Schwab U.S. Dividend Equity ETF can give you a mix of top dividend stocks, positioning you for growth and a ton of dividend income over the long run, which can help reduce your portfolio’s risk significantly. Its average P/E multiple is just 18.
Depending on your level of risk tolerance, you may still want to hold a large position in tech, but with valuations being as high as they are these days, it may be a good idea to reduce some exposure to the sector, given how volatile it can be.