The forward price-to-earnings ratio for the Roundhill Mag 7 ETF has fallen below 24, its lowest level since the fund launched more than three years ago, even as its megacap holdings stayed flat for the year. JPMorgan, Morgan Stanley and Yardeni Research all see the pullback as a buying opportunity following last week's hyperscaler earnings. Apple is the outlier, trading more expensive than a year ago despite a weak quarter that has some traders eyeing it on the short side.
The forward price-to-earnings ratio for the Roundhill Mag 7 ETF has fallen below 24, its lowest level since the fund launched a little more than three years ago. Shares of the ETF stayed flat for the year through Friday's close, but earnings growth expectations have surged, pulling the valuation down even as prices held steady.
Nvidia, Amazon and Meta lead the multiple compression
Forward P/E multiples for Amazon and Meta have fallen by more than a third over the past year. Nvidia's has nearly halved over the same span. Alphabet's multiple is flat, while Apple's has grown slightly more expensive.
Traders eye a catch-up trade
JPMorgan traders wrote in a Monday note that the group is trading more than two standard deviations below its mean from 2018's third quarter through Friday on a forward P/E basis. That gap, they said, implies roughly 30% upside to reach one standard deviation below the mean and about 56% upside to return to the average valuation — a setup that could fuel a catch-up trade after last week's hyperscaler earnings showed capital spending starting to pay off.
Michael Wilson at Morgan Stanley wrote Monday that hyperscalers now combine relative value with real upside optionality, though he expects performance to diverge across the group based on returns on investment, capital-spending discipline and execution quality. Analysts at Yardeni Research said in a Sunday brief that the recent AI-trade selloff represents a buying opportunity. Jefferies traders said Sunday the momentum unwind of recent weeks has begun to stabilize following hedge fund deleveraging.
Apple stands out as the exception
Apple is the only Mag 7 stock trading more expensive on a forward P/E basis than it was a year ago, partly because it skipped the heavy AI spending other hyperscalers made. According to the Jefferies trading desk, Apple had its "worst EPS move in [more than] 12 years" last week after weaker Q3 sales. Its trading desk called the stock interesting on the short side, pointing to numbers that are moving lower.
Source: CNBC
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