The bull market rolled on in May with equities making strong gains across most major markets with the MSCI World up 4.6%. The S&P 500 gained 5.3% for the month, however it was AI impacted stocks that were once again driving the market, leading to gains of 8.4% for the Nasdaq and 9.7% for emerging markets.
Emerging Markets: The unexpected AI winners
Emerging markets were the standout, gaining 25% year-to-date, driven largely by Taiwan and South Korea’s dominance of AI semiconductor supply chains. TSMC alone has rapidly become a $2 trillion behemoth, accounting for almost 15% of the emerging market index and 55% of Taiwan’s market. It’s a similar story in South Korea where Samsung and SK Hynix have driven much of the 120% gain in that market so far this year.
Rising yields, persistent inflation
The on again off again war in the Middle East continues to play havoc with bond markets, despite the US Congresses recent efforts to clip the wings of President Trump. As a result, inflation has continued to push higher, as have bond market yields, with the US 10-year hitting 4.6%.
Move over Mag 7, here comes the Parabolic 7
Most investors are familiar with the Magnificent 7: Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla. What fewer have noticed is that the Mag 7 has quietly become the “conservative” end of the technology market.
In recent weeks a new basket has emerged, labelled by strategists as the Parabolic 7, consisting of SanDisk, Marvell, Micron, Intel, Dell, AMD, and Broadcom. These are memory and chip names sitting one rung below the hyperscalers in the AI supply chain.
Last month we spoke about the SOX semiconductor index, which has gained around 170% since June 2025. However, this looks modest by comparison to the Parabolic 7 basket which has returned approximately 480% over the same period (see chart below). The Magnificent 7 meanwhile is up a mere 30%.
The Parabolic Seven
The rally has rotated through the Mag 7 and is now being carried by this second, narrower, less liquid cohort. The market cap of the Parabolic 7 has risen from around 4% of the S&P 500 to 8% in a matter of weeks and is pushing towards 12% of the Nasdaq.
When momentum becomes the story
It’s all too easy to make comparisons between the current market and the dot.com bubble, but it’s worth remembering that it wasn’t a story of pie in the sky internet companies such as Pets.com, in reality the S&P 500 experienced 25% earnings growth during 1999. The frothiest elements in that market were relatively small and largely confined to the Nasdaq.
The Parabolic 7 companies have genuine revenues and real roles in the AI supply chain. But it’s worth questioning the valuation logic behind some of them. The S&P 500 technology sector now trades at 45 times earnings on record profit margins of 30%, well over three times historic norms. To put this another way, if profit margins reverted to more normal levels the current earnings multiple would be north of 135. The problem is these valuations are premised on earnings growth extending far out into the future.
It is impossible to tell how much further these stocks can run. If history is any guide, much further than most people would expect. The numbers are mind boggling. Just this week SpaceX announced its upcoming IPO, at a proposed $1.75 trillion valuation, which is likely to drag additional hot money into the market.
Meanwhile Vanguard’s VOO, the world’s largest S&P 500 index ETF, crossed $1 trillion in assets, the first ETF in history to reach that mark. It has taken in $69 billion in 2026 alone, averaging $1.25 billion in daily inflows. Every dollar that flows into the index buys the stocks in it at whatever price they happen to be trading, with no price sensitivity attached.
This is not an argument that the rally ends tomorrow. It is an observation that when the Magnificent 7 becomes the value trade and the Parabolic 7 is the growth trade, the mechanism sustaining the rally deserves a closer look.
If you’d like to discuss the market shifts discussed above, and how this might affect your portfolio or investment strategy, get in touch today.
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