As megacap stocks continue to drive the S&P 500 and Nasdaq to new all-time highs, many investors are starting to question if some of these stocks have risen too fast and are due for a pullback. Companies like Nvidia, Broadcom, and Eli Lilly have seen incredible growth this year, outpacing the overall market by a wide margin.
Nvidia and Broadcom, known for their chips used in artificial intelligence, have seen their stock prices soar by 174% and 61%, respectively, in 2021. Meanwhile, pharmaceutical giant Eli Lilly, maker of popular drugs like Mounjaro for Type 2 diabetes and Zepbound for obesity, has seen its stock price surge by 53%.
This rapid rise in stock prices has led some experts to believe that the megacap bull market may have become unbalanced and lopsided. According to Bespoke Investment Group, stocks like Broadcom, Eli Lilly, Nvidia, Microsoft, and Apple are all considered “extremely overbought,” with their share prices significantly above their 50-day moving averages.
For example, Broadcom saw its stock jump by 36% in June alone, leaving it 34% above its 50-day moving average. The company’s market capitalization now exceeds $846 billion, making it the eighth largest company in the S&P 500. Similarly, Eli Lilly is trading about 12.5% above its 50-day moving average, closing Tuesday with a market value of more than $842 billion.
In response to this surge in demand for its drugs, Eli Lilly announced plans to invest an additional $5.3 billion in a manufacturing plant in Indiana to increase the supply of Mounjaro and Zepbound.
Other companies like Nvidia, Apple, and Microsoft are also trading significantly above their 50-day moving averages, signaling potential overvaluation. Nvidia, in particular, surpassed Microsoft as the most valuable public company during Tuesday’s trading session.
While these megacap stocks have undoubtedly been strong performers this year, investors should be cautious about chasing returns and consider taking profits or diversifying their portfolios to mitigate potential risks of a market correction. Stay tuned to Extreme Investor Network for more insights and analysis on market trends and investment opportunities.