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If you’ve ever watched a horse race, you know how exciting it is to see a dark horse beat one of the prerace favorites to finish in the money. Much of the excitement is wrapped up in realizing how much money smart bets on the surprise horse will pay. Broadcom (Nasdaq: AVGO) stockholders probably feel the same sensation because the company just knocked Tesla out of the S&P 500 Magnificent Seven.
The S&P 500 Magnificent Seven is a group of seven tech giants with the highest value in terms of market cap. Magnificent Seven members usually also have a significant market share in their sector. The combined performance of these stocks is seen by many as an indicator of how well the tech sector is performing writ large. Since tech has become such a powerful economic driver, being a Magnificent Seven member has tremendous cache.
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Companies wear the Magnificent Seven as a badge of honor, elevating their visibility with investors. All these things generally positively affect share value, which is why it’s always a big deal whenever a new member joins the club. Broadcom, which produces hardware and software for the computer industry, has benefited from AI’s emergence and surged in value.
According to a recent article in Fortune, Broadcom’s market cap hit $803 billion in early October, putting it just above Tesla’s valuation (at the time) of $786 billion. Since then, Broadcom’s market cap has surged to nearly $820 billion, largely on the strength of Broadcom’s bustling business selling AI chips, which Fortune estimates will go from $12.1 billion this year to $16.9 billion next year.
Broadcom stock was trading at around $88 in mid-October of last year, but it surged to $175.98 and it’s even paying a 1.16% dividend yield. By contrast, Tesla’s (Nasdaq: TSLA) current market cap has fallen to approximately $699 billion, putting it further behind Broadcom’s spot in the Magnificent Seven. So, does this mean you should load up on Broadcom and dump Tesla?
The answer to that question depends on many different variables, chief among them your investment goals and strategy. Owning shares of a Magnificent Seven stock can be lucrative, but it’s no guarantee of wealth or performance. Additionally, Magnificent Seven membership is not permanent. Elon Musk is always prone to develop an innovation that drives Tesla’s market cap past $1 trillion.
It’s also always possible for a company that no one expected, like Broadcom, to catch fire and become an even newer addition to the Magnificent Seven. Investing in Magnificent Seven stocks can certainly be a winning strategy, but so can thinking outside the box and looking for companies positioned to become new members. An even wiser play might be diversifying your portfolio by purchasing shares in Mag Seven members and potential new entries.
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This article This Hot Tech Stock Just Knocked Tesla Out Of The S&P 500 Magnificent Seven. Should You Be Buying? originally appeared on Benzinga.com