Nvidia and other mega-caps could see a short-term pullback

Now that mega-cap stocks have taken the S&P 500 and Nasdaq Composite to all-time highs, some stocks in the group have risen so high, so quickly that they may actually suffer a pullback. Nvidia and Broadcom, makers of chips used in artificial intelligence, have soared 174% and 61%, respectively, this year. Pharmaceutical developer Eli Lilly, maker of Mounjaro for Type 2 diabetes and Zepbound for obesity, is up 53% this year. In contrast, the S&P 500 is up 15% this year, through Tuesday's close. As a result, a growing chorus on Wall Street is concerned that the mega-cap bull market has gone too far and created an unhealthy, lopsided stock market. According to data from Bespoke Investment Group, for example, Broadcom, Eli Lilly, Nvidia, Microsoft, and Apple are all "extremely overbought," which is reflected in stock prices that are more than two standard deviations above their mean mobile over 50 days. Broadcom tops the list of overbought stocks after surging 36% in June alone, leaving the stock about 34% above its 50-day moving average. The semiconductor maker closed Tuesday with a market capitalization of more than $846 billion, eighth in the S&P 500, just ahead of Eli Lilly. Last Thursday, Broadcom jumped 12% after its second-quarter results beat analysts' estimates and it declared a 10-for-1 stock split. Eli Lilly is also now extremely overbought, Bespoke said, after benefiting from increased demand for its weight loss and diabetes drugs. Lilly is trading about 12.5% above its 50-day moving average, closing Tuesday with the ninth-largest stock market value in the S&P 500, at more than $842 billion. Late last month, Lilly announced it would invest an additional $5.3 billion in a manufacturing facility in Indiana to increase supply of its Mounjaro and Zepbound. Other stocks considered extremely overbought include Nvidia, Apple and Microsoft, which have been trading more than 33%, 17% and 7% above their 50-day moving averages, respectively. All three make up the three largest companies in the S&P in terms of market capitalization. Nvidia rose about 3.5% during Tuesday's trading session, overtaking Microsoft as the most valuable public company. The company had already surpassed Apple in value earlier this month.