Can Megacap Tech Stocks Parlay the AI Craze into Higher Profits?

Seven megacap technology stocks in the S&P 500 ($SPX) (SPY) have driven about three-quarters of the S&P’s gain this year in a rally sparked in part by investor obsession with artificial intelligence (AI).  These companies, including Microsoft (MSFT), Nvidia (NVDA), Alphabet (GOOGL), Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META), and Tesla (TSLA), need to deliver on the promise of AI earnings to justify their high valuations.

The rallies in these seven megacap stocks have pushed their valuations to frothy levels, with the companies’ shares trading at an average of 32 times earnings.  JMP Securities said, “We’re getting closer to the moment when the companies that are claiming AI-related profits will have to start showing them.” The seven megacap stocks delivered record profits of $99 billion in Q3, and with these companies comprising nearly 30% of the S&P 500, they have more sway over the direction of the index than ever.