The following is an excerpt from Zacks Chief Strategist John Blank’s full May Market Strategy report To access the full PDF, click here.

I. Intro: What did we just learn from the first quarter’s mega-cap tech reports?

First, Microsoft (MSFT Quick QuoteMSFT - Free Report) has emerged as the winner from Big Tech’s first earnings of the second presidential term of Donald Trump.

The software giant likely regains its premier place from Apple (AAPL Quick QuoteAAPL - Free Report) as the most valuable public company.

Investors bet that it is best placed to navigate the current trade war.

Second, Apple and Amazon (AMZN Quick QuoteAMZN - Free Report) were the major losers.

The iPhone maker budgeted at least $900 million in extra quarterly costs — from tariffs.

The e-commerce giant? – It cut its outlook, and warned of higher prices and plunging consumer spending.
 

II. Regardless, a strong mega-cap P/E valuation bias still gets incorporated — into the S&P500 and the Nasdaq.

Their market capitalizations (led by AAPL at $3.2T, NVDA at $2.6T, and MSFT at $2.9T) are extraordinary.

Consider their collective Market Capitalization time-series chart, shown below…

Image Source: Zacks Investment Research

After their exit from the COVID recession of 2020, Apple, Microsoft, Alphabet (GOOGL Quick QuoteGOOGL - Free Report) , Amazon, NVIDIA (NVDA Quick QuoteNVDA - Free Report) , Meta Platforms (META Quick QuoteMETA - Free Report) and Tesla (TSLA Quick QuoteTSLA - Free Report) have led.

• But they have very high forward 12M P/E multiples.
• Their huge market shares attracted FTC monopoly cases. Now at trial.
• Since peaking in late 2022, TSLA has struggled with sales and earnings growth.

Over the last 10 full years? Four mega-cap tech stocks drove the U.S. large-cap indexes (AAPL, MSFT, GOOGL and AMZN).

Tesla and NVIDIA? They are relatively newer entrants to this class of mega-cap stocks.

2023? Meta caught up.

2024? Nvidia led.

YTD 2025: Tesla (-30.5% YTD to May 2nd, 2025) and Nvidia (YTD returns -16.9% on May 2nd, 2025) lead a mega-cap share correction.
 

III. Should stock investors treat these two names — TSLA & NVDA — differently?

Here is another fascinating Zacks chart.

It plots the ‘Mag 7’ mega-cap share prices (blue) against their Revenues (green).

Image Source: Zacks Investment Research

This so-called Magnificent Seven (Amazon, Apple, Google (Alphabet), Meta, Microsoft, Nvidia and Tesla) make up more than a quarter of the S&P500.

Their stellar EPS performance had previously driven the U.S. stock market's outperformance.

For the bulls in 2025?

E-commerce spending should continue to rise, as a percentage of U.S. retail spending.

But only at the long-term trend growth rate.

For the bears?

Mega-cap momentum traders are now profit-taking.

Now, let’s turn to the strategic tool I like to apply: Top-down sector and industry analysis.

This allows me to winnow down to specific stocks.

Ones that are most likely to outperform.

So much of picking a winner is playing in the hottest industries, first and foremost.
 

IV. Presenting the Zacks MAY 2025 Sector/Industry/Company Telescope

The April 30th, 2025 data showed investors across-the-board upgrades.

Zacks Industry Ranks supplied one Very Attractive Sector: Financials.

At Attractive. Info Tech. Yes, earnings growth gets lifted by “AI” data/cloud centers and tech mega-cap earnings strength. Health Care stayed on at Attractive too.

Three other Attractive ratings lifts landed on Consumer Staples (a big upgrade), Utilities (a big upgrade), and Materials (a big upgrade).

Communication Services fell to Market Weight.

Consumer Discretionary stayed at Market Weight. Energy stayed a Market-Weight.

Industrials rose to a Market Weight too.

(1) Financials rose to a Very Attractive rating from Attractive. Banks-Major & Investment Funds looked best. Finance, Insurance, and Banks & Thrifts looked good too.

Zacks #1 Rank (STRONG BUY): Mitsubishi UFJ Financial Group (MUFG Quick QuoteMUFG - Free Report)

(2) Info Tech stayed fell to Attractive from a Very Attractive sector. Semis led.

Zacks #1 Rank (STRONG BUY): Broadcom (AVGO Quick QuoteAVGO - Free Report)

(3) Consumer Staples rose to Attractive from Very Unattractive. Tobacco and Soaps & Cosmetics were strong.

Zacks #1 Rank (STRONG BUY): Philip Morris International (PM Quick QuotePM - Free Report)

(4) Health Care stayed at Attractive. Medical Care was best.

(5) Utilities rose to Attractive from Unattractive. Utility-Electric Power looked the best.

(6) Materials rose to Attractive from Very Unattractive. Metals-non-Ferrous, Steel, and Paper looked good.

(7) Communications Services fell to Market Weight from Attractive. Utility-Electric Power was the best.

(8) Consumer Discretionary stayed at Market Weight. Consumer Electronics and Media looked good.

(9) Energy stayed at Market Weight. Pipelines looked the best, again.

(10) Industrials rose to Market Weight from Unattractive. Construction-Building Services, Aerospace & Defense, and Conglomerates looked strong.
 

V. My Conclusion

I want to wrap this summary up with more positive news.

Total Q1-25 earnings for the 256 S&P 500 members that have reported results are up double-digits, at +14.0% from the same period last year, on +4.0% higher revenues.

For Q2-25, Zacks expects total S&P500 earnings to be up +7.0% from the same period last year, on +3.8% higher revenues.

Such data does not spell out too much doom-and-gloom, does it?

At least not yet.

Enjoy the rest of my May Zacks Market Strategy report.

John Blank, PhD.
Zacks Chief Equity Strategist and Economist