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Recently, Chad Harmon and Karl Frank delivered a quarterly investment update. We rely on the research of iM Global Partners (iMGP) for our economic and investment outlook. For a more complete commentary, click here to open a PDF file or click below to watch the movie.
Right now, investors are optimistic, especially regarding Artificial Intelligence (AI). Perhaps a little too optimistic? A poster child for the current AI exuberance is Nvidia, a graphics chip maker used in AI applications. The stock is up over 200% this year (as of June 30, 2023), pushing its market cap over $1 trillion and into the top-10 largest constituents of the S&P 500. Nvidia has strong fundamental earnings growth potential, but its stock is currently trading at a P/E ratio of more than 220x! (The overall S&P 500 index has a P/E around 20x, currently.)*
With the sudden frenzy in all things AI, the average YTD return for Amazon, Google, Meta, Microsoft, NVIDIA, and Tesla is 96%. The gains in these six mega cap tech stocks are responsible for almost the entire S&P 500 return for the year. Moreover, the combined market cap of these six stocks (plus Apple), now comprises over 27% of the total index, the largest concentration in history for the top seven stocks.*
Successful investing requires a balance between offense and defense. Earning superior long-term returns does require one to take calculated risks when opportunities present themselves, but to also exercise caution during periods of market exuberance. By maintaining a disciplined and balanced investment approach, we are well-positioned to weather the inevitable market storms and capitalize on the opportunities that are also sure to arise.
Click here to watch the recording of this Lunch & Learn.
Download the Second Quarter 2023 Investment Commentary.
*Source: iMGP Quarterly Investment Commentary. Data accurate through June 30, 2023.
