Investors should use any correction as an opportunity to load up on Magnificent 7 stocks, NYU valuation expert says

• Investors should buy the top tech stocks if the market enters a correction, Aswath Damodaran says.
• The market is ignoring the risk of a "big and global" next year, he said.
• If crisis strikes, investors should snap up Magnificent Seven stocks at a discount, he said.

A market correction is an opportunity to snap up the hottest tech stocks even as valuations already appear to be sky-high, Aswath Damodaran said.

The so-called Magnificent 7 stocks have pushed the S&P 500 to record highs and sparked fears of concentration risk this year. These companies, which include mega-caps companies such as Amazon, Meta, and Tesla, account for around a third of the benchmark index.

Damodaran, an NYU finance professor, suspects that mood and momentum have become the chief drivers for these stocks, with bullish sentiment steamrolling fundamental considerations. But blowout gains seen since 2023 can't go on unbroken, Damodaran said, estimating some sort of change in 2025.

"If you think about everything that's happened since 2008, the one thing we know almost as a constant, every two or three years, something happens that's big and global, and I think you need to build that in," he said in an interview with Bloomberg TV. "And the fact that the market is not building in is a little troubling — what happens when you have that crisis?"

Even so, investors should treat any correction as a chance to gain more exposure to the group of high-flying tech leaders, Damodaran said. He noted that the group has become "insanely profitable," and their market leadership isn't likely to ebb anytime soon.

"I'd suggest that when that happens you find a way to add at least one, maybe two or three of these companies, because these are so much a part of what drives the economy and the market," he added.

Damodaran's embrace marks a shift from his previous stance on tech's red-hot run. In mid-2023, he dumped his stake in Nvidia, warning that the dominant chipmaker was pushing the limits of sustainable value investing.

Since then, Nvidia has continued raking in blowout profits each quarter, pushing its shares up 179% year-to-date. Damodaran considers the company the sole firm that has turned a profit on artificial intelligence, given Nvidia's role in creating hardware for the emerging tech.

However, each of the leading tech firms is a "special" company, he said, pointing to their ability to scale up revenue and growth while chasing AI exposure.

"If you're thinking as a value investor, I've never seen cash machines as lucrative as these companies are, and I don't see the cash machines slowing down," Damodaran said.