In the U.S. stock market, individual investors are shifting their focus from an investment strategy centered on supergiant technology stocks to undervalued value stocks. As the perception spreads that major technology stocks, known as 'Magnificent 7 (M7),' are overly valued, there is a clear movement to reorganize portfolios around stocks centered on revenue stability and dividends.
According to The Wall Street Journal (WSJ) on the 27th (local time), automotive analyst Chase Goodman recently purchased small and mid-sized value stocks such as Photronics (PLAB) and Medallion Financial (MFIN). Goodman noted, "I am readjusting assets that were previously centered on technology stocks," adding, "The AI craze has bubble-like characteristics, and corporations with solid performance and dividends will gain competitiveness in the market moving forward."
Sam Yocum, an executive at a private equity firm in California, has also increased his allocation to traditional industry stocks such as Duke Energy (DUK) and Edison International (EIX). Yocum said, "While the innovation of companies like Nvidia, Microsoft, and Apple is acknowledged, the current valuations are difficult to justify," and added, "With policy uncertainties compounded, a technology-centered strategy carries significant risks."
The 12-month forward price-to-earnings ratio (PER) for the Standard & Poor's (S&P) 500 is currently 22.5 times, significantly exceeding the 10-year average of 18.8 times. Lisa Shalett, Chief Investment Officer (CIO) at Morgan Stanley Investment Management, warned, "Excessive optimism is dominating the market, and risks related to interest rates and tariffs are not being reflected at all."
The U.S. economic media Quartz pointed out that the so-called 'M7' has driven up stock prices based on technological innovation, market dominance, and high capital expenditure, but according to traditional valuation metrics, it is clearly in an overvalued state. In fact, Microsoft's market capitalization reached $3.69 trillion, and its PER was recorded at 38.91 times. Apple's PER was 32.95 times, while Nvidia hit an astonishing 52.47 times. Tesla had the highest PER among the seven stocks at 162.71 times.
Quartz analyzed that these stocks account for more than approximately 30% of the total market capitalization of the S&P 500, exposing even ordinary investors, who do not individually purchase these stocks, to excessive risks through index exchange-traded funds (ETFs). These companies have been leading the industry through research and development (R&D) investments and capital expenditure, but the overheated stock prices present a risk of future correction.
Some analysts are also raising the possibility of an 'AI bubble.' While most corporations in the M7 are integrating AI into their entire business models, there are projections that if AI demand falls short of expectations or the pace of technological diffusion slows, a collapse of valuations could occur.
Amid these circumstances, interest in small and mid-sized value stocks is gradually expanding. An accountant explained, "A few years ago, the M7 accounted for half of portfolios, but now there is a focus on dividend-stable stocks that are even unfamiliar in name." He assessed, "The current market favors thorough research and value-based selective investing."
This year's ETF cash flow also reflects this change. According to the data platform Morningstar Direct, $47 billion flowed into growth stock ETFs, while $25 billion exited value stock ETFs. Experts believe that this cash flow may actually present new opportunities for individual investors.