In an interesting note, UBS highlighted earlier today that while the biggest stocks in the S&P 500 (SPX) make up over a third of the index’s market cap, their valuations are actually relatively cheap. The six largest companies—Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta (META), Microsoft (MSFT), and Nvidia (NVDA)—now account for 31.2% of the index’s market cap, up from 11.2% in 2013. Despite their dominance, their valuation growth has been slower than the broader market.
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Jonathan Golub, UBS’ chief U.S. equity strategist, noted that these mega-cap tech stocks have seen stronger earnings contributions in 2024 compared to the rest of the market (38.9% vs. 5%), while their valuation increases have been more restrained (5.8% vs. 8.6%). This dynamic has made the “Big 6” relatively cheaper over the past year, even as their performance outshines the rest of the market.
2025 Growth Expectations
Looking ahead, growth expectations for these tech giants remain robust, as 2025 earnings are projected to grow by 19.1%, compared to 10.8% for the rest of the S&P 500. Golub emphasized that upward revisions in earnings estimates have been a key driver of stock returns. It is also worth noting that while estimates for the “Big 6” have been steadily rising, those for the broader market have been trending downward, which is a pattern expected to continue into 2025.
Which Tech Stock Is the Best Buy?
Overall, when it comes to the aforementioned tech stocks, analysts expect the most upside potential from Nvidia stock thanks to its price target of $177.08 per share, which implies gains of more than 28% from current levels. On the other hand, they expect the least from AAPL, as its price target of $245.28 per share implies an upside of less than 1%.
