Apollo: The stagnation of profit margins for companies outside the seven giants of the U.S. stock market poses a valuati…
Complete. Here is the key summaryApollo Global Management Chief Economist Torsten Slok warned that if the 493 companies in the S&P 500 index, excluding the "Magnificent Seven" of U.S. stocks, fail to improve their profit margins through artificial intelligence spending, it will intensify doubts about the high valuations of large tech stocks. Slok emphasized that the earnings performance of the remaining constituents is crucial; if profit margins lag in rising, it could raise concerns about the overly optimistic implicit profit assumptions for the Magnificent Seven, thereby posing valuation risks
Torsten Slok, Chief Economist at Apollo Global Management Inc., warned that companies outside of tech giants have failed to demonstrate an improvement in profitability from their artificial intelligence spending, which poses a risk to the valuations of large tech stocks.
"We need to see profit margins rising for companies outside of the seven giants in the U.S. stock market," Slok said on Tuesday, referring to the acronym for American tech giants. "In other words, the situation for the remaining 493 constituents of the S&P 500 has become very, very critical."
Slok stated that Wall Street needs to see positive results in earnings and profit margins for what he calls the remaining 493 constituents of the S&P 500 after adopting artificial intelligence. Otherwise, skepticism about valuations may deepen, including skepticism about the valuations of large tech companies.
"Assuming profit margins take a few years to start rising, the question is whether the implied earnings assumptions for the seven giants are too high relative to what will actually happen, or if they are being realized too quickly," he said. "This is absolutely crucial for the discussion of what the seven giants should be worth today."