One record after another is being set on the US markets. The rally is supported, among other things, by the strong run of the tech-heavy “Magnificent Seven”. Stock market expert Jim Cramer is not worried that the market is no longer diversified enough. In his opinion, tech stocks should not be pitted against the rest of the market.
• US markets in rally mode
• Jim Cramer not concerned about overweighting the Magnificent Seven
• Differentiation by type of customer is helpful
The US indices S&P 500 and Dow Jones have repeatedly reached new record levels in recent days. Last year, the positive development of the US markets was largely driven by the profits of the so-called Magnificent Seven, which include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla. According to an analysis by MarketWatch, the seven tech giants contributed to an increase in stock market value of $5.1 trillion in the S&P 500 in 2023. The remaining 493 values, however, were only responsible for an increase of 2.8 trillion US dollars. Almost two thirds of the increase in value of the broad US index went back to the Magnificent Seven.
Jim Cramer warns against market division into “tech and rest”
Against this background, investors are beginning to ask themselves whether the broad diversification of the stock market barometer still exists. A concern that Jim Cramer, stock market expert and host of CNBC’s “Mad Money,” does not share, as he revealed in one of his recent broadcasts. In his opinion, it would make little sense to divide the market into tech stocks on the one hand and the rest on the other. Cramer emphasized that it is more important to find out why it is the tech stocks that are pulling the market higher. In his opinion, it would make sense to consider your customers here.
Customers tend to be either businesses or consumers
The stock market expert argued that the tech companies would do so well compared to other companies because other corporations were among their largest customers and they were not dependent on consumers hit by inflation. As Cramer said on his show: “We have a market that is made up of companies that sell to other companies, and those stocks are doing great. Then we have even more companies that cater to the consumer, which is a lot less attractive right now customer base and whose shares are currently difficult to own.
Tesla stock stands out
However, this classification applies to the Magnificent Seven to varying degrees. Elon Musk’s car manufacturer Tesla in particular stands out here. According to Cramer, Musk has successfully managed to sell his company as a tech company, as “technology on wheels.” And this was okay as long as demand for Tesla’s electric vehicles was good. However, now that demand is decreasing, people are starting to see Tesla for what it really is, namely “a company that sells cars” and therefore heavily dependent on the consumer. At the electric car manufacturer’s most recent earnings call, Musk avoided admitting that there was a problem with demand. In fact, the rental car company Hertz recently decided to sell a third of its electric car fleet – which largely consists of Teslas – due to the lack of demand.
Microsoft, Alphabet, Amazon and Meta are enterprise-oriented
Microsoft, on the other hand, is a company that primarily serves a customer base from other companies. “Companies use her [Microsofts; Anmerk. d. Red.] Things. Companies use their AI. “Private individuals are ‘small fish’ for Microsoft,” Cramer summarized.
According to the stock market expert, Google parent Alphabet would also be among the companies that serve other companies, even if investors might assume otherwise at first glance. “The customer is the advertiser and many advertisers see Google as a way to reach buyers without having to spend a fortune,” said Cramer.
Then there would be Amazon, Meta and Apple. At Amazon, too, one could wrongly assume that this is primarily about consumers, but that too is a fallacy: “At Amazon, too, it’s about the advertisers and the many companies that use Amazon Web Services. It’s true, Amazon is partly a consumer – and partly business-oriented. Amazon Web Services helps companies that want to be in the cloud. Consumers almost never use the cloud except to back up their photos, companies use the cloud all the time. To serve you better.”
When it comes to Meta Platforms, consumers may assume that the company is about them. That’s true to a certain point, because “if you use Instagram or Facebook, then you are the product,” explained the Mad Money host. Here, advertising customers would try to place the right advertising for consumers. Meta is particularly suitable for this because it is tailored very precisely to users and can therefore show them exactly what interests them.
Apple stock as a consumer company
According to Cramer, Apple is again a consumer company. CEO Tim Cook’s company counts very few companies among its customers and is therefore exposed to the same risks as Tesla, which is why analysts and investors are keeping a close eye on the iGroup’s guidance for the current quarter.
During his broadcast, Cramer did not directly address the Magnificent Seven stock NVIDIA, but did say a few words about its competitor AMD. Advanced Micro Devices would also primarily serve corporate customers. AMD shares are currently experiencing a rally as the tech group is working on its own AI chips that will compete with those from market leader NVIDIA. Although AMD also has a significant group of consumer customers, AMD does not sell to them directly, but through large corporate customers such as HP and Dell.
Companies are “swimming in money”
Finally, Cramer emphasized once again that he is not worried about a lack of market breadth. Companies would continue to be “swimming in money” because they refinanced when interest rates were lower. It is the consumers who are being crushed by tuition fees or sky-high inflation or high rents. “Companies don’t go to the supermarket or arrange home insurance or go to the hospital. Companies have money while consumers are actually tightening their belts. If you were a company, who would you rather have as customers? And as an investor, in which stocks Do you want to invest more?” says Cramer.
Editorial team finanzen.net