It is no secret the “Magnificent 7” have taken the US stock market by storm in 2023 and 2024 with the S&P 500 up 30% year to date (as of April 2023). The Mag 7 companies of Microsoft, Apple, Alphabet, Meta, Amazon, Nvidia, and Tesla have returned more than 60% in 2023, while the rest of the S&P 500 returned 8%. To put these valuations in perspective, the value of the Nvidia outpaced the entire value of the FTSE 100, the 100 largest companies listed on the London Stock Exchange.
The US stock market has been defined by a land of giants. Not just now, but this has been a repeating theme. The tech giants of Silicon Valley and Seattle have executed unprecedented influence over the markets.
Below we can see the breakdown of the top ten companies by market cap and their corresponding trailing twelve-month (TTM) revenue for FY23. Apart from Tesla, the entirety of the Mag 7 can be found here. After the Mag 7 stocks, we find that Berkshire Hathaway, Eli Lilly, Taiwan Semiconductor Manufacturing, and Broadcom fill out the latter half of the top ten.
Through this combo graph, we can see the distinction of companies that the market deems to still be in a “growth” vs “maturity” stage.
Price to sales ratio is a metric used to determine a company’s market value relative to its annual revenue. A growth company such as Nvidia is valued at $2.3 trillion while only bringing in $60 billion in revenue giving it a price to sales ratio of 38. A mature company such as Berkshire Hathaway is valued at $891 billion while bringing in $440 billion in revenue giving it a price to sales ratio of 2.
It is important to note that price to sales ratios vary by industry. Nvidia’s first mover’s advantage in AI has many investors pricing in future earnings from the lucrative and fast-growing industry. On the other hand, Berkshire Hathaway focuses on consistent cash flows from its insurance, distribution, manufacturing, and retail businesses, which does not have the future growth potential or flashiness that AI has.
The difference between these two mega cap companies is not so much a gap as it is a divide the size of the Grand Canyon. This begs the question of what valuation is the right one? Granted there are so many factors that go into a company’s valuation, but when we are reaching levels where a company such as Nvidia is the third most valuable US-listed company, it makes you wonder how sustainable these valuations are.
I will close with this final quote from Warren Buffet – “Be fearful when others are greedy, and greedy when others are fearful.”
Data Analysis Process
Market cap and TTM revenue data came from Kaggle. The data was cleaned in python using pandas. The python code can be found here. Once cleaned, the data was ingested in Canva where the column chart for market cap and line chart for revenue were made. The two charts we then combined together.
SPY data was found on MarketWatch. Data was loaded into Tableau Public and initial visualization can be found here. Once initial visualization was made, the graph was edited in Canva to add in additional text.
Credit to Sukhmandeep Singh Brar on Kaggle for the market cap and revenue data which can be found here.
Data for SPY daily price can be found here.
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