Margins at Risk: Big Tech shaky if others don't grow

Big Tech valuations are inflated and unsustainable long-term, unless the rest of the market picks up its pace. Torsten Slok, chief economist at Apollo Global Management, stated on Bloomberg Television on Tuesday that Big Tech valuations are at risk. This means earnings for other companies need to climb, and fast.

Basically, the seven tech giants are carrying the market by themselves, which isn't a healthy situation. Imagine a race where only seven runners are fast, while the others struggle. How long can that last? Slok doesn't mince words: if we don't see profit margins rise outside the “Magnificent 7,” things will get critical.

The 'Magnificent 7' are the seven US tech giants everyone knows: Apple, Microsoft, Amazon, Alphabet (Google), Nvidia, Tesla, and Meta. They've dominated the stock market in recent years, making many investors rich. The term has become common to denote their disproportionate influence.

Conversely, the S&P 493 is simply the rest of the S&P 500. These are the other 493 companies that make up the index, those that aren't Apple or Nvidia, if you catch my drift. According to Slok, what happens to these 493 companies becomes “very, very critical.” If they don't gain traction, the risk is that the entire market, including the giants, could slow down.

It means the party for tech giants alone might have an expiration date if the rest of the economy doesn't recover. If you've put all your eggs in the Big Tech basket, you might want to look elsewhere too. Torsten Slok emphasized that rising profit margins outside the Magnificent 7 are crucial for overall market stability.

It's not just about corporate balance sheets, but about the overall health of the stock market. If the other 493 companies can't improve their profits, the burden of supporting the entire index falls more and more on a select few. And we all know, a few can't carry all the weight forever. So, it's time to look beyond the usual suspects.