After years as stock market heavyweights, Big Tech shares are looking a lot like an early Rocky Balboa: beaten up and on the ropes.

The beat-down has been such that even members of the Magnificent Seven are undervalued and investors should buy the dip, Goldman Sachs analyst Peter Oppenheimer wrote in a note to clients Tuesday. The Roundhill Magnificent Seven ETF — which offers equal exposure to Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — has slid roughly 11% for the year amid concerns about artificial intelligence disruption and the war with Iran, which has choked oil supplies. But continued military conflict could prompt central banks to cut interest rates to avoid a recession, and that’s something tech stocks tend to like.

“The risk is that the longer the disruption to the Strait of Hormuz continues, the more this morphs into a perceived growth shock, limiting interest rate rises,” Oppenheimer wrote in the note, published before a two-week ceasefire was agreed to on the condition that Iran reopens the Strait. “Given the relative insensitivity of the cash flows in the technology sector to economic growth, and the benefit it would derive on any rally in bond yields, this sector might prove to be more defensive over the next few months.”

Go the Distance

Tech giants have been synonymous with growth in recent years. But now they’ve fallen behind some surprising market stalwarts. Walmart, for example, is trading at a higher price-to-earnings ratio than Amazon.

“That’s a bit of an anomaly,” Jed Ellerbroek, portfolio manager at Argent Capital Management, told The Daily Upside. Typically, the faster-growing companies trade at higher multiples. So it’s a good opportunity to buy big tech stocks, Ellerbroek adds. Not only because they’re relatively inexpensive, but because “their businesses are performing really well,” which he predicts will be underscored during quarterly earnings reports.

Investors looking to buy the dip will have a long shopping list:

• Morningstar recently named Microsoft as one of the most undervalued stocks to buy. Broadcom and NXP Semiconductors were also on the list. “We remain confident in secular tailwinds in tech, including cloud computing, artificial intelligence and the long-term expansion of semiconductor demand,” the analysts wrote. “After months of poor performance, we see software as offering the most upside within the sector.”
• Alongside tech, Morningstar says communication services, real estate and consumer cyclical stocks look the most undervalued at the start of the second quarter. Energy and consumer defensive stocks look the most overvalued.

Tesla in the Ring: Tesla, whose stock is down around 21% for the year, seems to be itching to rejoin its Mag Seven tech peers, announcing a partnership with Intel on Tuesday. Intel is collaborating with Elon Musk on the Terafab project to design chips for Tesla, SpaceX and xAI. “Terafab represents a step change in how silicon logic, memory and packaging will get built in the future,” Intel CEO Lip-Bu Tan said on X.

Bill Ackman has a message for Universal Music Group’s lagging stock price: It’s me, hi, I’m the problem, it’s me. On Tuesday, the enigmatic hedge fund manager proposed a €55 billion (or roughly $63.5 billion) takeover of Universal Music Group, saying he could revive the Amsterdam-based company’s “languished” stock price in large part by moving to America and listing on the New York Stock Exchange. To pull it off, Ackman is proposing a sort of SPAC remix.

SPARC Plug

Ackman’s hedge fund, Pershing Square, took a 10% stake in the company, which owns the rights to major artists and bands including The Beatles and Bob Dylan as well as contemporary superstars such as Bad Bunny, Billie Eilish, Kendrick Lamar and Taylor Swift. In 2021, UMG spun off from French conglomerate Vivendi and went public on the Euronext Amsterdam Stock Exchange; its current headquarters, however, are in Santa Monica, California. Five years after the spinoff, as Pershing noted in a slide deck Ackman shared on X, UMG’s revenue has increased by some 60% and its adjusted EBITDA, a profitability metric, has grown by 70%. In comparison, its share price has slumped roughly 40% from a peak two years ago.

What’s needed now, per Pershing, is a souped-up SPAC-style merger:

• In the proposed deal, UMG would merge with Pershing Square SPARC Holdings, a blank-check special-purpose acquisition rights company established in 2023. Unlike SPACs, which court investors before finding a takeover target, the SPARC gives investors the right to buy in after a target is identified.
• The deal would value the company at around €30 per share, a premium from the €19 per share it traded at on Tuesday.

… Ready for It? Funding for the deal will rely in part on a planned sale of UMG’s stake in Spotify, worth roughly €1.5 billion. Two-thirds of shareholders must approve of the transaction, Pershing said. That means Ackman will have to win over shareholders including French billionaire Vincent Bolloré, whose conglomerate controls a roughly 28% stake in UMG, as well as Chinese tech group Tencent, which holds roughly 11%. Pershing Square’s own stake has been scaled down to around 4.5% in recent years. While Ackman told the Financial Times that he’s confident he has enough support, it’s not as if he has a blank space and can write in his name.

With apologies to Bob Marley, it’s a different sort of redemption song for the private credit industry.

Asset management giant Blackstone said Tuesday it closed an oversubscribed $10 billion opportunistic credit fund, suggesting the panic surrounding the private debt market isn’t gripping everyone.

No Time Like the Present Selloff

The $1.8 trillion private credit market’s ills are well known. A handful of high-profile implosions last year, led by UK lender Market Financial Solutions, US auto lender Tricolor and auto parts supplier First Brands spooked investors about loan quality. JPMorgan’s Jamie Dimon, whose every word can move markets, followed with his now-trademark “cockroach” warning about more defaults to come. Finishing the trifecta of investor anxiety was the sector’s significant exposure to the software industry, which has faced sell-offs over the potentially existential risk posed by artificial intelligence.

For many investors, the mounting anxiety has become too much to bear. In recent days and weeks, private credit funds at KKR, Morgan Stanley and Blue Owl Capital have enforced redemption caps after retail investors, in particular, overwhelmed them with requests to pull their cash. Even at Blackstone, senior staff chipped in $150 million earlier this year to help cover $3.8 billion in redemption requests at its flagship fund. So what’s Blackstone’s sudden tonic?

• The new Blackstone Capital Opportunities Fund V will target both performing investments and opportunistic ones, which is code for undervalued assets, suggesting the recent panic has created a chance for bargain buying.
• “This is a very attractive environment to deploy flexible capital in private corporate credit as well as to provide opportunistic and structured solutions to companies in sectors with strong thematic tailwinds,” said Rob Petrini, co-portfolio manager of the new fund.

Doubts Remain: Moody’s downgraded its outlook for business development companies, seen as a close public market proxy for private credit, to negative from stable Tuesday, citing the wave of redemption requests. What would bring back stability? A little less yanking of cash, naturally. With Barings becoming the latest firm to impose a fund cap on Monday, there’s no sign of waning anxiety just yet.