Three problems with the mega-cap growth trade
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THREE PROBLEMS WITH THE MEGA-CAP GROWTH TRADE
Analysts at RBC have highlighted three key problem areas for the mega-cap growth trade: slowing and less dominant EPS growth, stretched positioning and stretched valuations.
The latest evidence of the first point were Nvidia's results last week.
The AI giant still grew revenue by 122% in the second quarter but that was down from about 250% the quarter before. Its outlook pointed to further slowing revenue growth in Q3.
Secondly, RBC highlights that buy-side positioning in mega-cap growth futures is also still close to all-time highs.
Thirdly, RBC notes that valuations, although below their peak, don't look cheap by historical standards.
The 12-month fwd P/E of the top 10 S&P 500 names is 26.4x, well above the long-term average, and the P/E for the other 490 names in the benchmark index stands at 17.8x.
"We see the worst valuations in tech," RBC says, "which still looks expensive in large cap and small cap."
(Samuel Indyk)
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