Eight Megacap Stocks are Driving the Entire Stock Market Higher this Year

The rally that we have experienced in the stock market since the October 2022 low, and for all of 2023, has been driven entirely by Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Netflix and Tesla.

This has been great news for those holding these stocks. But, while these stocks may have been oversold in October, we, nonetheless, need to ask ourselves whether some are now dramatically overvalued. More importantly, what this says about our economy as a whole is that investors may put their faith in just a handful of big tech stocks.

Amazon's price-to-sales ratio is 2, but Alphabet, Meta and Netflix are at 5. Tesla is at 6. Apple is at 7. Microsoft is at 10 and Nvidia is at 20. The price-to-sales ratio of the rest of the S&P 500 is at 1.8. Likewise, these eight companies are trading at a forward PE ratio averaging over 23 versus the 14.50 for the rest of the S&P 500.

Does this mean that only Tesla is going to control renewable energy moving forward? Or that only Nvidia and Microsoft (and no smaller companies) will be beneficiaries of the AI revolution? (I don't think so). But, the valuations are clearly implying that it has been decided that all of these companies are winners to a degree that any risk associated with their growth is now completely discounted.

And, that is kind of odd when you consider that a decade ago, Apple and Microsoft traded at market discounts because people believed that they were too big to be able to expand quickly.