In our previous paper, we outlined how investors can use CME's Micro S&P 500 Futures to hedge beta exposure and extract pure alpha.
The paper referenced that the Super Sevens stocks (Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla) will continue to outperform the broader S&P 500 index. Not only do these stocks benefit from passive investing and ESG investing, these firms also have solid fundamentals to back up their gargantuan valuations.
Each of the firms in the Super Sevens offer unique value drivers. Each firm is a market leader in its space and has demonstrated resilient earnings capacity and solid growth potential. Still, each also has its own set of risks. Notably, with the Super Sevens the value drivers outweigh the potential risks.
AMAZON
VALUE DRIVERS
• Blistering profits from AWS offering with dominant market share of 33%.
• Market dominance in e-commerce and solid supply chain network.
• Successful new categories: Kindle (publishing), Alexa (voice assistant), and Prime (video streaming).
POTENTIAL RISKS
• Heavy reliance on AWS for profits. Slowing growth in AWS due to slowdown in corporate IT spending.
• Low profit margins in e-commerce business. Slowing growth due to lower consumer spending.
• Rising competition in cloud services and e-commerce.
ANALYST PRICE TARGETS
• Across 54 analysts providing a 12-month price target, 42 (77%) having a strong buy rating, 7 (13%) of them have a buy rating, 4 (7%) suggest a hold, while just 1 (2%) has a strong sell rating.
• Average 12-month price target stands at 137, with a maximum of 220 and a minimum of 85.
TECHNICAL SIGNALS
• Technical signals point to momentum deeply in favour of Amazon shares. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a buy.
APPLE
VALUE DRIVERS
• Product category definers. Dominant and still growing iPhone demand.
• Solid eco-system which is extremely hard to displace.
• Control over both software and hardware enables specialized tailored improvements.
• Sticky services such as App store, Apple Pay, and potentially Apple BNPL.
POTENTIAL RISKS
• Apple is heavily reliant on external fabricators exposing it to supply-chain bottlenecks.
• Heavily dependent on iPhone sales.
• Rising dependence on future growth in unexplored new categories.
ANALYST PRICE TARGETS
• Across 42 analysts providing a 12-month price target, 22 (52%) having a strong buy rating, 6 (14%) of them have a buy rating, 13 (31%) suggest a hold, while just 1 (2%) has a strong sell rating.
• Average 12-month price target stands at 187, with a maximum of 220 and a minimum of 140.
TECHNICAL SIGNALS
• Technical signals point to solid momentum favouring long position in Apple shares. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a strong buy despite Apple trading at near its all-time-high.
GOOGLE
VALUE DRIVERS
• Google is the dominant search engine (86% market share).
• Phenomenally successful and effective ad-targeting capabilities.
• Heavy investments in future innovation enabling leapfrog into new verticals such as Android, Waymo (FSD & Maps).
• Successful early acquisitions such as YouTube, Android, Applied Semantics & DoubleClick (AdSense), Nest (Home Automation).
POTENTIAL RISKS
• Massive reliance on ad revenues via search for profits. Slowing ad spend as firms cut back on spending.
• Non-trivial dependence on cloud revenue for growth exposes them. Slowing cloud revenue growth due to lower corporate IT spending.
• Failure to expand into new domains such as social media, wearable tech, and gaming.
ANALYST PRICE TARGETS
• Across 52 analysts providing a 12-month price target, 40 (77%) having a strong buy rating, 7 (13%) of them have a buy rating, while 5 (10%) suggest a hold. None of the analysts have a sell rating.
• Average 12-month price target stands at 131, with a maximum of 190 and a minimum of 100.
TECHNICAL SIGNALS
• Technical signals point to decent momentum favouring Google shares but prices are at tiny risk of oscillating downwards. Oscillators point to neutral while Moving averages point to a strong buy.
• In aggregate, technical signals point to a buy.
META
VALUE DRIVERS
• Market monopoly on social media with high penetration across global markets on multiple platforms.
• Flagship Facebook platform continues to see growth with 2.9 billion monthly active users (MAU).
• Successful acquisitions have provided them with a wide suite of social media platforms – WhatsApp (2 billion MAU) and Instagram (2 billion MAU).
• Successful developer tools (Graph, Hydra, React) have allowed them to build useful SDK (Software Development Kit). Potential sources of enterprise revenue from these.
POTENTIAL RISKS
• Increasing competition from TikTok.
• Privacy concerns have a direct revenue impact e.g., Apple’s new privacy policies.
• Falling market share for flagship Facebook in advanced economies.
• High reliance on ad-sales. Slowing ad sales as firms cut back on spending.
• Shaky bet on the Metaverse which is starting to fade.
ANALYST PRICE TARGETS
• Across 60 analysts providing a 12-month price target, 39 (65%) having a strong buy rating, 7 (12%) of them have a buy rating, 10 (17%) suggest a hold, 1 (2%) sell rating, and 3 (5%) has a strong sell rating.
• Average 12-month price target stands at 281, with a maximum of 350 and a minimum of 100.
TECHNICAL SIGNALS
• Technical signals point to decent momentum favouring Meta shares. Oscillators signal neutral indicating a tiny risk of shares shedding gains while Moving averages point to a strong buy.
• In aggregate, technical signals point to a buy.
MICROSOFT
VALUE DRIVERS
• Sheer dominance of Windows (74% market share) & MS Office.
• Deep roots in MS Office enables the firm to straddle across consumers & enterprise.
• Diversified software offerings - cloud (Azure), gaming (Xbox), enterprise (Windows Server and SQL), search (Bing), productivity (Office), collaboration (Teams), and AI (through Open AI's ChatGPT).
• Active M&A activity to acquire assets - LinkedIn, OpenAI, GitHub, Skype, Mojang, Nokia, Activision-Blizzard (Pending).
• Besides Windows, Microsoft controls dev frameworks such as .Net further strengthening their grasp on SW dev.
POTENTIAL RISKS
• Limited success in hardware offerings unlike Apple.
• Multiple major acquisitions have fizzled – Skype and Nokia.
• Limited adoption in enterprise software.
ANALYST PRICE TARGETS
• Across 51 analysts providing a 12-month price target, 37 (73%) having a strong buy rating, 6 (12%) of them have a buy rating, 7 (14%) suggest a hold, while just 1 (2%) has a strong sell rating.
• Average 12-month price target stands at 345, with a maximum of 450 and a minimum of 232.
TECHNICAL SIGNALS
• Technical signals point to decent momentum favouring Microsoft shares. Oscillators are at neutral while Moving averages signal a strong buy.
• In aggregate, technical signals point to a strong buy.
NVIDIA
VALUE DRIVERS
• Market dominance in discrete GPU’s (80%).
• Early mover in AI hardware which gives them a lead over the competition.
• Raytracing, DLSS, Neural Network cores.
• Nvidia’s CUDA is the primary choice for training ML models.
• Market dominance in high-growth data centre graphics hardware (95%) and super-computing hardware.
• Successful enterprise partnerships – car manufacturers using Nvidia software.
• Emerging tech such as AI and VR require more graphics intensive processing driving demand for Nvidia’s products.
POTENTIAL RISKS
• Hardware-focused business model exposes it to supply-chain risks and bottlenecks.
• Extremely high P/E of 225 dependent upon expectations of future growth in AI.
• Losing market share in discrete GPUs and enterprise GPUs to AMD and Intel.
ANALYST PRICE TARGETS
• Across 50 analysts providing a 12-month price target, 36 (72%) having a strong buy rating, 6 (12%) of them have a buy rating, 7 (14%) suggest a hold, while just 1 (2%) has a sell rating.
• Average 12-month price target stands at 444, with a maximum of 600 and a minimum of 175.
TECHNICAL SIGNALS
• Technical signals point to solid momentum favouring long position Nvidia shares. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a strong buy despite Nvidia relentless and unrivalled price ascent.
TESLA
VALUE DRIVERS
• Early mover in EV’s with dominant market share in US (62%).
• Dedicated and loyal customer base.
• Vertical integration of EV value chain allows it to reduce reliance on external suppliers.
• Early investment in large factories that will allow them to scale output more efficiently.
• Huge and monetizable supercharger network by opening it up to other EV makers.
• Subscription model for software enables revenue generation after product sale.
• Long term vision has allowed Tesla to create entirely new products such as supercharger network, battery banks, home power backup and solar roofs.
• Tesla’s planned Robotaxi and entry into car insurance can be hugely disruptive.
POTENTIAL RISKS
• Increasing competition from automobile majors as well as Chinese EV firms.
• Tesla’s brand is deeply entangled with Musk’s reputation.
• Dependence on government incentives to make Tesla affordable.
• Continued access to battery metal minerals.
• Ongoing and unresolved production scaling challenges.
ANALYST PRICE TARGETS
• Across 46 analysts providing a 12-month price target, 18 (39%) having a strong buy rating, 5 (11%) of them have a buy rating, 17 (37%) suggest a hold, 1 (2%) has a sell rating, and a 5 (11%) hold a strong sell rating.
• Average 12-month price target stands at 201, with a maximum of 335 and a minimum of 71.
TECHNICAL SIGNALS
• Technical signals point to solid momentum favouring Tesla. Oscillators point to buy and Moving averages point to a strong buy.
• In aggregate, technical signals point to a strong buy.
SUMMARY
The Super Sevens are well positioned to continue outperforming the wider market. As mentioned in our previous paper, investors can use a beta hedge to nullify the effects of the broader market (S&P 500) and extract pure alpha from the growth of the Super Sevens.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/cme/.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
The paper referenced that the Super Sevens stocks (Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla) will continue to outperform the broader S&P 500 index. Not only do these stocks benefit from passive investing and ESG investing, these firms also have solid fundamentals to back up their gargantuan valuations.
Each of the firms in the Super Sevens offer unique value drivers. Each firm is a market leader in its space and has demonstrated resilient earnings capacity and solid growth potential. Still, each also has its own set of risks. Notably, with the Super Sevens the value drivers outweigh the potential risks.
AMAZON
VALUE DRIVERS
• Blistering profits from AWS offering with dominant market share of 33%.
• Market dominance in e-commerce and solid supply chain network.
• Successful new categories: Kindle (publishing), Alexa (voice assistant), and Prime (video streaming).
POTENTIAL RISKS
• Heavy reliance on AWS for profits. Slowing growth in AWS due to slowdown in corporate IT spending.
• Low profit margins in e-commerce business. Slowing growth due to lower consumer spending.
• Rising competition in cloud services and e-commerce.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 137, with a maximum of 220 and a minimum of 85.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a buy.
APPLE
VALUE DRIVERS
• Product category definers. Dominant and still growing iPhone demand.
• Solid eco-system which is extremely hard to displace.
• Control over both software and hardware enables specialized tailored improvements.
• Sticky services such as App store, Apple Pay, and potentially Apple BNPL.
POTENTIAL RISKS
• Apple is heavily reliant on external fabricators exposing it to supply-chain bottlenecks.
• Heavily dependent on iPhone sales.
• Rising dependence on future growth in unexplored new categories.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 187, with a maximum of 220 and a minimum of 140.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a strong buy despite Apple trading at near its all-time-high.
VALUE DRIVERS
• Google is the dominant search engine (86% market share).
• Phenomenally successful and effective ad-targeting capabilities.
• Heavy investments in future innovation enabling leapfrog into new verticals such as Android, Waymo (FSD & Maps).
• Successful early acquisitions such as YouTube, Android, Applied Semantics & DoubleClick (AdSense), Nest (Home Automation).
POTENTIAL RISKS
• Massive reliance on ad revenues via search for profits. Slowing ad spend as firms cut back on spending.
• Non-trivial dependence on cloud revenue for growth exposes them. Slowing cloud revenue growth due to lower corporate IT spending.
• Failure to expand into new domains such as social media, wearable tech, and gaming.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 131, with a maximum of 190 and a minimum of 100.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a buy.
META
VALUE DRIVERS
• Market monopoly on social media with high penetration across global markets on multiple platforms.
• Flagship Facebook platform continues to see growth with 2.9 billion monthly active users (MAU).
• Successful acquisitions have provided them with a wide suite of social media platforms – WhatsApp (2 billion MAU) and Instagram (2 billion MAU).
• Successful developer tools (Graph, Hydra, React) have allowed them to build useful SDK (Software Development Kit). Potential sources of enterprise revenue from these.
POTENTIAL RISKS
• Increasing competition from TikTok.
• Privacy concerns have a direct revenue impact e.g., Apple’s new privacy policies.
• Falling market share for flagship Facebook in advanced economies.
• High reliance on ad-sales. Slowing ad sales as firms cut back on spending.
• Shaky bet on the Metaverse which is starting to fade.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 281, with a maximum of 350 and a minimum of 100.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a buy.
MICROSOFT
VALUE DRIVERS
• Sheer dominance of Windows (74% market share) & MS Office.
• Deep roots in MS Office enables the firm to straddle across consumers & enterprise.
• Diversified software offerings - cloud (Azure), gaming (Xbox), enterprise (Windows Server and SQL), search (Bing), productivity (Office), collaboration (Teams), and AI (through Open AI's ChatGPT).
• Active M&A activity to acquire assets - LinkedIn, OpenAI, GitHub, Skype, Mojang, Nokia, Activision-Blizzard (Pending).
• Besides Windows, Microsoft controls dev frameworks such as .Net further strengthening their grasp on SW dev.
POTENTIAL RISKS
• Limited success in hardware offerings unlike Apple.
• Multiple major acquisitions have fizzled – Skype and Nokia.
• Limited adoption in enterprise software.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 345, with a maximum of 450 and a minimum of 232.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a strong buy.
NVIDIA
VALUE DRIVERS
• Market dominance in discrete GPU’s (80%).
• Early mover in AI hardware which gives them a lead over the competition.
• Raytracing, DLSS, Neural Network cores.
• Nvidia’s CUDA is the primary choice for training ML models.
• Market dominance in high-growth data centre graphics hardware (95%) and super-computing hardware.
• Successful enterprise partnerships – car manufacturers using Nvidia software.
• Emerging tech such as AI and VR require more graphics intensive processing driving demand for Nvidia’s products.
POTENTIAL RISKS
• Hardware-focused business model exposes it to supply-chain risks and bottlenecks.
• Extremely high P/E of 225 dependent upon expectations of future growth in AI.
• Losing market share in discrete GPUs and enterprise GPUs to AMD and Intel.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 444, with a maximum of 600 and a minimum of 175.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a strong buy despite Nvidia relentless and unrivalled price ascent.
TESLA
VALUE DRIVERS
• Early mover in EV’s with dominant market share in US (62%).
• Dedicated and loyal customer base.
• Vertical integration of EV value chain allows it to reduce reliance on external suppliers.
• Early investment in large factories that will allow them to scale output more efficiently.
• Huge and monetizable supercharger network by opening it up to other EV makers.
• Subscription model for software enables revenue generation after product sale.
• Long term vision has allowed Tesla to create entirely new products such as supercharger network, battery banks, home power backup and solar roofs.
• Tesla’s planned Robotaxi and entry into car insurance can be hugely disruptive.
POTENTIAL RISKS
• Increasing competition from automobile majors as well as Chinese EV firms.
• Tesla’s brand is deeply entangled with Musk’s reputation.
• Dependence on government incentives to make Tesla affordable.
• Continued access to battery metal minerals.
• Ongoing and unresolved production scaling challenges.
ANALYST PRICE TARGETS
• Average 12-month price target stands at 201, with a maximum of 335 and a minimum of 71.
TECHNICAL SIGNALS
• In aggregate, technical signals point to a strong buy.
SUMMARY
The Super Sevens are well positioned to continue outperforming the wider market. As mentioned in our previous paper, investors can use a beta hedge to nullify the effects of the broader market (S&P 500) and extract pure alpha from the growth of the Super Sevens.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com/cme/.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Full Disclaimer - linktr.ee/mintfinance
