Mag-7 finished the month of May 2025 down -4.3% for the YTD 2025 period (versus S&P 500 at +0.5%), after having been down as much as -25.8% as of 8 April.

We expect this Mag-7 catch up to continue into the second half of 2025:

*First of all, Mag-7 will continue to act as a “defensive growth proxy” in an environment in which growth continues to be scarce. In Q1 2025, Mag-7 EPS growth came in at +32% YoY (with NVDA the last to report in this cohort last week), compared to “only” +8% YoY for the rest-493 in the S&P 500 index.

*Mag-7 just posted its best quarterly positive EPS surprise in Q1 since 3Q of 2023, and we believe this can set the stage for the Mag-7 versus rest-493 EPS growth differential to even widen in the remainder of 2025, especially in an uncertain economic backdrop.

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In terms of the Mag-7 catch-up trade, the 2 stocks that spring to mind are: Nvidia (NVDA / +0.6% YTD 2025) and Alphabet (GOOGL / -9.3% YTD 2025).

While the P/E valuation premium of Mag-7 versus rest-493 is still at 43%, which is at the low-end of the premium range since 2018, Nvidia and Alphabet P/E 2025e multiples at 17x and 27x, respectively, stick out compared to S&P 500 at 22x, given the superior growth and much higher FCF margin…

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