July 2025 was anything but boring on Wall Street. The US equity market may have closed the month right in line with fair value estimates, but under the surface a handful of mega-cap stocks posted eye-popping gains.
Here is the twist. While the market climbed 2.3 percent, the price-to-fair-value ratio actually fell. This happened because Morningstar boosted fair value estimates faster than market prices could keep up. In other words, stocks looked the same on paper, but the fundamentals improved more than the prices did.
Five Stocks, $2.2 Trillion
In a month packed with earnings reports, trade uncertainty, and AI headlines, just five companies accounted for a staggering 2.2 trillion dollars in market capitalization increases.
- Nvidia (NVDA): Up 20 percent in fair value after the United States allowed sales of its H2O AI GPUs to China. That is $900 billion, which is about the size of Tesla.
- Microsoft (MSFT): Up 20 percent in fair value, adding $800 billion, which is about the size of JPMorgan or Walmart.
- Meta Platforms (META): Up 10 percent, equal to $200 billion, roughly the size of Caterpillar.
- Taiwan Semiconductor (TSM) and JPMorgan (JPM): Each gained about $170 billion.
To put 2.2 trillion dollars in perspective, that is like creating 22 companies worth $100 billion each. There are only about 140 companies in existence with market caps of $100 billion or more.
The Margin of Safety Problem
Even with the valuation boost, the market is offering no cushion for the macroeconomic risks ahead.
- Trade and tariff talks with China, Canada, and Mexico remain unsettled.
- US growth is slowing and is not expected to recover until early 2026.
- Tariff-driven inflation is expected to rise in the second half of 2025.
- The Federal Reserve may cut rates in September, but for now is holding steady.
Winners, Losers, and Sector Shake-Ups
Growth Stocks
The Morningstar US Growth Index rose 2.95 percent in July but still trades at a 16 percent premium. Rarely do growth stocks get this expensive, though select names like Marvell and Workday still look appealing.
Value Stocks
Value stocks remain the real bargain at a 7 percent discount. Small caps are even more attractive at a 16 percent discount.
AI and Tech
Information technology and communications had the largest fair value increases due to AI hardware demand and cloud growth.
Healthcare
The most undervalued sector, but weighed down by policy uncertainty, rising costs, and weak earnings guidance.
Energy
Still undervalued even with bearish oil forecasts, offering a potential hedge if inflation or geopolitical tensions increase oil prices.
Overvalued Sectors
Utilities, consumer defensive stocks such as Costco, Walmart, and Procter & Gamble, and financials look expensive. Industrials also require a significant margin of safety given the slowing economy.
The Takeaway
The market may appear to be trading at fair value, but that figure hides a concentration problem. Five companies drove a 2.2 trillion dollar boost while risks such as tariffs, slowing growth, and rising inflation remain. The best opportunities may be in undervalued small caps, select value stocks, and AI-driven innovators, but maintaining a safety buffer is wise.