Hello,

 

Throughout the last several months we have seen several big-name stocks dominate discourse. Last week Nvidia, the US Chipmaker, overtook Apple as the world’s second most valuable company. Two weeks ago, Nvidia again made headlines, following the release of its Q1 earnings report which surpassed market expectations, causing investors to add a further $140 billion in market capitalization.

 

Nvidia is one example of a company which has seen a surge in value, but the trend is prevalent in many US companies. Since 2020, valuations of the Magnificent Seven stocks Nvidia, Apple, Amazon, Microsoft, Alphabet, Tesla, and Meta Platforms have soared with these stocks trading at roughly 30 times their projected earnings in the next 12 months, compared with roughly 20 times for the broader S&P 500. Whilst valuations continue to increase, it is important to note that on a historical basis, valuations are by no means at their highest point. In 1999, preceding the Dot Com Bubble, companies such as Cisco, Yahoo! and Oracle all had P/E Ratios far above 100. Broadly the current rally has been earnings driven and earnings have risen in line with prices, meaning that valuations still may not be excessive, and opportunities exist from an investment selection perspective.

 

The ability of good active managers to capitalise on these opportunities is a key benefit to investors. Within our active top-down investment process we continue to focus on the economic cycle, superior asset allocation, companies with strong business models and robust balance sheets – all with the aim of producing long-term investment outperformance.

 

As always, if you wish to discuss anything in further detail, please do get in touch.