Slok from Apollo: Stagnant profit margins of companies outside the US stock market’s Magnificent Seven pose a valuation risk for tech giants

Glonghui, July 7th｜Apollo Global Management Inc. Chief Economist Torsten Slok has warned that companies outside of the major tech giants have failed to demonstrate profitability improvements from their artificial intelligence spending, which poses risks to large tech stock valuations. “We need to see profit margins rising in companies beyond the Magnificent Seven,” Slok said on Tuesday, referring to the U.S. technology giants. “In other words, developments among the other 493 components of the S&P 500 index are becoming extremely, extremely critical.” Slok stated that Wall Street needs to see the rest of the 493 S&P 500 companies, as he calls them, showing positive results in profits and profit margins after adopting artificial intelligence. Otherwise, doubts about valuations, including those of large tech companies, could deepen. “Suppose profit margins won't begin to rise for several years. The question is whether the profit margin assumptions embedded in the Magnificent Seven are too high relative to what will actually happen, or whether they will materialize too quickly,” he said. “This is absolutely crucial when discussing how much the Magnificent Seven should be worth today.”