Volatility in the tech sector has seen share prices fall for six of the Magnificent 7 since the start of 2025, wiping $1.57tn off the group’s valuation. Milford Senior Analyst Stephanie Batchelor talks to Ryan Bridge about the reasons behind the sudden decline for this group of major, leading US tech companies.
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Bridge talks Business: 11 March 2025
Episode Transcript
Ryan Bridge
Kia ora, I’m Ryan Bridge and this is Episode 24 of Bridge talks Business with Milford.
We need to talk about Donald Trump everybody. In today’s episode, we’ll focus on the seven powerful signs to watch closely, that are crucial to your financial future. They’re called the Magnificent 7 and while these massively powerful tech companies might be held over in the United States, their might and rapid growth has helped to drive the wider stock market. This in turn drives a lot of market expectation, our KiwiSavers, our investments, even our businesses and jobs down here in New Zealand. But something is a little off, and that’s where Trump comes in. We’ll get to that in a moment. First, here’s your Top Five Business Bits from the past seven days.
1. Uncertainty reigns for businesses in the US, with an increasingly unpredictable Oval Office. US ISM business surveys last week showed manufacturing a bit weaker, but the service sector resilient, which is good.
2. Meanwhile, the US labour market continues to chug along, with employment trends broadly steady over the past few months.
3. The party tipped to lead the next German government after their election, is trying to get support for a massive spending package. The conservatives want to reverse years of fiscal restraint there, which would be a big shot in the arm for Europe’s largest economy. And by extension, the whole region.
4. Slowing US growth and policy uncertainty is weighing on US share markets. They’ve fallen some 10 percent from recent peaks. In contrast, European shares continue to outperform. It’s partly on optimism around that increased government spending. But also as investors realise that there is an alternative to US shares that have dominated for so long.
5. This week we have data on US inflation, but we are really waiting for further data on US economic growth. And for that, we will have to wait until next week.
Alright, let’s get straight into it this week. There is a lot to discuss. There’s a lot going on from the Oval Office in Washington, which is affecting us, our investments, our shares. Anyone who is invested around the world will be affected by what’s going on in America right now, which is why we’ve got Stephanie Batchelor with us. She’s a Senior Analyst at Milford and she’s with us to break down the week’s developments. Just a note that this segment is informational only and should not be considered financial advice. Steph, welcome to the podcast.
Stephanie Batchelor
Hi Ryan.
Ryan Bridge
Now, let’s talk about the stock market in the US. It’s not looking so hot at the moment. It’s been pulling back, particularly in the last couple of days, but also over the last couple of weeks, last month. What’s going on here? What’s driving this?
Stephanie Batchelor
The big reason for this pullback that we saw in the last half of February, continuing into March, is a concern about US economic growth. As the Trump administration has settled in, they’ve started to announce policies or potential policies that could have a negative impact on economic growth. So, these are things like the trade tariffs, like cuts to government spending. And so that’s made investors nervous. Over the weekend, Trump didn’t rule out a potential recession either. He said this is going to be a transition period. And as a result, we saw markets just overnight pull back another almost three percent.
Ryan Bridge
It’s pretty significant. What’s the correction that’s going on here? And in some indices, it isn’t a correction territory, right? So, the tech stocks seem to have been particularly affected by this. Why is that? What is behind that? What would the tech stocks be a bellwether for potentially?
Stephanie Batchelor
There’s also a few things going on within the tech space. The big thing is that investors are worried about how much companies have been spending on artificial intelligence. And they’re worried now, particularly, given the concerns around US economic growth, that they may not be able to generate a sufficient return to justify that spend. And of course, tech stocks are generally valued a little bit more expensive than the rest of the market. They often have a lot of growth priced in. And so when investors get nervous about growth, the tech side of the market takes a hit often more than the rest of the market.
Ryan Bridge
And the biggest ones to watch, of course, are the Magnificent 7, what’s known as the Magnificent 7. And they make up a pretty decent chunk of the NASDAQ in particular. So, what is the Magnificent 7?
Stephanie Batchelor
They’re the seven largest tech companies in the world. So, it’s Nvidia, Microsoft, Meta, Apple, Amazon, Alphabet and Tesla. And so they’ve all been hit, to varying degrees, though. And each of them has their own little nuances going on about why they’ve moved the way they have.
Ryan Bridge
Yeah, so we’ve spoken about the Donald Trump effect, and the tariff effect, and the comments at the weekend taking a slice off all of them. But some are still actually performing better. In fact, there’s one that’s performing year to date. Meta is performing better. Well, is up compared to the rest, which are all down, right? So, what’s the story behind that?
Stephanie Batchelor
Meta is the only Magnificent 7 that is now up. I think it’s only a few percent, though. So, it remains to be seen what happens in the next few days. But it really comes down to the fact that Meta is seen as the most compelling and earliest monetisation opportunity for artificial intelligence. If you think about how Meta makes money, it sells sales advertising. They were already a leader in targeted advertising, and their investments in artificial intelligence are helping to extend that lead. They help advertisers create better ads. They help them target to the right users. It makes it better for the users, you and I, and keeps us scrolling. And then it also improves the ability to measure and give advertisers confidence that they can keep coming back to the Meta advertising model. So, that’s what has been supporting the Meta share price this year.
Ryan Bridge
What about Alphabet? Because Alphabet owns Google, right? That is an advertising driven model, too. So, why have they not experienced the same kind of boost – or why are they not doing as well?
Stephanie Batchelor
There’s been a really interesting divergence between the two. So, they’re both advertising powerhouses. The difference is really that where Meta is seen as a beneficiary of AI, investors are seeing Google as being potentially threatened by AI. If we think about their main product, Google Search, increasingly, people are starting to start their searches on things like ChatGPT, Perplexity, even Meta AI. And so, if Google is losing search queries to these AI competitors, potentially advertising dollars start to follow that and that could have a detrimental impact on Google’s revenue. There’s also another big overhang, which is the DOJ – or the courts ruled that Google illegally maintained a monopoly in search. And so, they’re going through the process now of figuring out a punishment or a remedy, which will be decided sometime in August. And depending on what that outcome is, that could also have a really negative impact on Google’s competitive advantage. So, a few big overhangs on Alphabet, despite the overall advertising industry still being relatively healthy or has been, those are the two things that are really holding the Alphabet stock back.
Ryan Bridge
So Google could be about to get a taste of the Ask Jeeves treatment. It kind of got swept under the carpet when Google got big. All right, so that makes sense so far. What about Apple? Because Apple is one of the Magnificent 7. And often when we see the tech stocks going down, you sort of see a lot of money heading towards Apple. Is that happening at the moment? If not, why is it not happening? What’s going on there?
Stephanie Batchelor
Yes. So, if you exclude last night and you take a one month view where the whole market pulled back, the Mag7 pulled back, actually Apple was up. And so, the reason is it’s seen as a more defensive stock within the Magnificent 7. When investors get nervous about the economy or the markets, they tend to sell some of the other Magnificent 7 and put that money into Apple. And the reason it’s seen as more defensive is a couple of things. So firstly, they’ve got a huge consumer base. They have 2.3 billion active devices out there, and people tend to replace the phones on a three, four, five, six year timeframe. So that’s seen as a bit of a recurring revenue stream. And then we’re also all locked into subscriptions. So, whether it’s cloud, whether it’s music, whether it’s different apps. And that is also a little bit defensive. So, we’re all very loyal Apple consumers. And it’s probably one of the last things that we would cut, even if we were starting to feel the pinch. So that’s a little bit of defensiveness.
And then the other reason is that with this concern about how much companies are spending on artificial intelligence, some of the other players are spending $60 to $100 billion a year on these opportunities. Apple is spending about $10 to $12 billion. They’re trying to play it from the application and hardware side of things. Whereas the others are buying land, building data centers, very investment heavy kind of uses. If investors are worried about the future of that spend and whether it’s worth it, Apple is spending less there, so potentially it’s a little bit less exposed.
Ryan Bridge
Okay, fascinating. What about Tesla? Because I’ve been looking at the news lately and even in New Zealand, people are spray painting Teslas, often getting the wrong type of car just doing any old EV. But there’s clearly a campaign against the fact that Elon Musk owns this company. They had a huge rally when Donald Trump was campaigning and the relationship between Donald Trump and Elon Musk was key to that. That now seems to be unraveling and quite quickly in terms of stock price.
Stephanie Batchelor
Yeah, so the core kind of automotive business for Tesla is in a little bit of a free fall at the moment. Year to date in Europe, Tesla sales are down 45%, I think. And in China, over Jan and Feb sales are down 30%. And it’s thought that this is due to the backlash over Elon Musk’s political actions. We’re also seeing huge wide scale protests at Tesla stores in the US, a lot going on there. And people are also concerned about how he’s splitting his time between Tesla, Twitter or X, XAI, Neuralink, SpaceX, and now the Department of Government Efficiency. So, how is he going to do justice for all of these different ventures that he has? So, yeah, the Tesla share price is now down 55% from its peak. So, it’s taken a big hit.
Ryan Bridge
And that was just the end of last year. Incredible. So, just to give people a sense, we’re talking about these tech companies, and they can seem quite abstract and far away. And it’s over in America who really cares. But they are a bit of a bellwether in terms of the wider market movement. I mean, they have literally moved markets off their basis. How big are they? How significant are they as a proportion of the stock market in the States?
Stephanie Batchelor
When I last checked, they were about 30% of the US share market, which is sizeable. And they have driven part of this big rally. And so when that momentum turns, that can have a pretty negative impact. We’ve also seen a lot of retail participation in these technology names. So, a lot of mom and dad investors are buying Nvidia and Tesla and these companies. So, when consumers get nervous, when corporate investors all get nervous, they kind of disproportionately can take a hit.
Ryan Bridge
Thank you, Steph. That was Steph Batchelor. Steph Batchelor, she’s a Senior Analyst at Milford. Don’t forget you can watch, follow, like, subscribe and comment on all of our podcasts and our video on YouTube as well. We’ll do it all again next week. See you then.
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