Scott Opsal of The Leuthold Group suggests that the ‘magnificent seven’ megacap tech stocks are skewing investors’ perception of the broader US equity market. Opsal notes that the substantial index weights, high profitability, and outsized returns of these tech giants overshadow the performance of most publicly listed companies. According to Opsal, investors should be cautious due to the distortion caused by these tech titans.
Extended valuations, a common feature of prolonged bull markets, are evident in the S&P 500’s price-to-earnings (P/E) ratio of 23.4x trailing earnings, which is at the higher end of its historical range. A decade ago, in 2015, the S&P 500 began with a more typical P/E ratio of 17.6x earnings. The market’s valuation has since increased by 33 per cent, driven by high multiples on tech titans such as Microsoft at 37x earnings, Apple and Amazon at 35x, and Nvidia at 50x.
Opsal argues that the profitability of megacap tech companies has overshadowed the broader market. Nvidia, for instance, has net margins exceeding 50 per cent on sales of $US165 billion, while Microsoft earns a net margin of 36 per cent on sales of $US281 billion. Meta also demonstrates remarkable profitability with a 40 per cent net margin on $US179 billion in sales. While the S&P 500’s overall profitability has expanded from 9.7 per cent in 2015 to 11.7 per cent in June 2025, the average company’s net margins have remained relatively stagnant, moving from 6.2 per cent to 6.4 per cent during the same period.
