With the recent surge in megacap tech stocks such as Nvidia, Broadcom, and Eli Lilly, there is growing concern among investors and analysts about the possibility of overvaluation. These companies have seen significant gains this year, far outpacing the overall market. Nvidia and Broadcom, known for their chips used in artificial intelligence, have experienced gains of 174% and 61%, respectively, while Eli Lilly, a pharmaceutical developer, has seen a 53% increase. The S & P 500, on the other hand, has only risen by 15% this year, suggesting that these stocks may have risen too high, too quickly.
Data from Bespoke Investment Group indicates that several megacap stocks, including Broadcom, Eli Lilly, Nvidia, Microsoft, and Apple, are “extremely overbought.” This is reflected in their share prices being more than two standard deviations above their 50-day moving averages. For example, Broadcom saw a 36% jump in June, leaving the stock 34% above its moving average. Eli Lilly, benefiting from increased demand for its products, is trading 12.5% above its moving average. These levels of overbought conditions are seen as warning signs that the stocks may be due for a pullback.
The rapid rise in the stock prices of megacap tech companies has led some on Wall Street to worry about an unbalanced and unhealthy stock market. With companies like Nvidia, Apple, and Microsoft trading significantly above their moving averages, there is a concern that the bull market in megacap stocks may have gone too far. Nvidia, in particular, saw a 3.5% spike in its stock price recently, surpassing Microsoft as the most valuable public company.
As investors continue to monitor the performance of megacap tech stocks, it will be crucial to keep an eye on whether these companies can sustain their elevated stock prices. The market dynamics and investor sentiment may shift quickly, leading to potential corrections in the overbought stocks. It is important for investors to stay informed and proactive in managing their portfolios to navigate potential market volatility.