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Tony Robbins shares a reminder for those stuck in the ‘Magnificent 7’ bubble

For those caught in the still-inflating “Magnificent Seven” tech stock bubble, it’s a worthwhile endeavor to remember that within the S&P 500 (^GSPC) there are 493 other potential stocks to invest in.

Industry, healthcare and more are yours for the taking!

And beyond the S&P 500, there can be great investment opportunities in private equity, government bonds, and maybe even classic cars, if that’s your thing.

Put it all together and this is what is known as diversification – a proven approach to building wealth, tested by millionaires and billionaires alike, praised life and business strategist Tony Robbins.

“I would say maintain the diversification. We’ve all heard it a million times,” Robbins told Yahoo Finance at its headquarters in New York City (see video above).

The 6-foot-2 author, who recently released “The Holy Grail of Investing,” says it’s a reminder of long-time friend and acclaimed investor, hedge fund billionaire Ray Dalio. By diversifying, an investor can better reduce correlations between investments – and lower potential risk.

Known for his ultra-energetic seminars, Robbins, who reportedly has a net worth of more than $600 million, warned about the AI ​​hype bubble.

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“I’m concerned about it too,” Robbins said of investors’ infatuation with Magnificent Seven names like Nvidia (NVDA) and Microsoft (MSFT).

The diversification reminder couldn’t come at a better time, as trading in the Magnificent Seven has become hyper-correlated, moving largely in a single direction: up and to the right.

The Magnificent Seven now represents about 30% of the S&P 500’s market cap, thanks in part to a hearty response to AI chipmaker Nvidia’s earnings report a week ago. This market reaction has Wall Street analysts tripping over themselves to boost earnings forecasts, essentially creating more upside momentum in the group’s stock prices.

Life and business strategist Tony Robbins (left) reminds investors that diversification is important in an interview with Yahoo Finance Executive Editor Brian Sozzi (right)

Life and business strategist Tony Robbins (left) reminds investors that diversification is important in an interview with Yahoo Finance Executive Editor Brian Sozzi (right). (Yahoo Finance) (Yahoo Finance)

Over the past three months, Magnificent Seven’s earnings estimates have been revised up by as much as 7%, with margins rising 86 basis points, according to Goldman Sachs strategists.

According to Yahoo Finance calculations, the average Magnificent Seven share is up 14% this year. Nvidia leads the way with a 60% advance, while Tesla (TSLA) is down 23%.

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Over the past year, two of the Magnificent Seven companies have posted triple-digit percentage gains: Nvidia with 239% and Meta (META) with 184%. The S&P 500 is up a very respectable 29% during that period.

Some on the street are finally starting to call a timeout for the Magnificent Seven, with reasonable explanations that any reasonable investor should consider.

“Heightened expectations and focused positioning set the bar high for the Magnificent 7 to beat,” JPMorgan Asset Management strategists argued in a new client note. “AI will be investable for the long term and its beneficiaries will be much more than just chip makers.”

They added that a soft economic landing and falling interest rates later this year “bode well for a catch-up” by sectors and companies left behind during last year’s rally.

An argument could be made that not every member of the Magnificent Seven delivered stellar fourth quarters and guidance to justify the near-record valuation of their shares.

Quote from Tony RobbinsQuote from Tony Robbins

Quote from Tony Robbins

Apple’s (AAPL) performance in China was weak. March quarter expectations were weak. iPhone sales were not impressive.

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As for Alphabet (GOOG, GOOGL), it missed estimates of advertising revenue, the core of its business. Tesla’s quarter and Elon Musk-led earnings call were riddled with red flags.

Microsoft’s quarter has blown a hole in the narrative – in the short term – that all its AI efforts will lead to a massive rerating of its earnings estimates by the Street. Aside from announcing its first-ever dividend, Meta’s quarter was okay, but it also increased capital expenditures for 2024 by a ton, which could weigh on margins and cash flow.

Amazon (AMZN) and Nvidia’s quarters are universally seen as huge.

“I’ve done everything in my life saying that success leaves clues. Find the best in the world. Find out exactly what they do, do the same thing, and your chances of success increase a hundredfold,” Robbins said.

The best investors in the game stay diversified – and not by buying seven tech companies that sometimes compete for the same customers.

Think about it.

Brian Sozzi is editor-in-chief of Yahoo Finance. Follow Sozzi on Twitter/X @BrianSozzi and further LinkedIn. Tips about deals, mergers, activist situations or something else? Email brian.sozzi@yahoofinance.com.

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