Whenever you see a list of best-performing stocks, it’s inevitably loaded with many small stocks that most investors have never heard of. This year, though, it’s practically been the opposite trend as the two top performing stocks in the S&P 500 on a YTD basis – Meta Platforms (+96%) and Nvidia (+88%) – are not only household names, but they also have market caps of more than $500 billion.  We’d also note that both stocks are more than 30 percentage points ahead of the next closest stocks in terms of top YTD returns!

With such strong returns among the largest stocks in the S&P 500, the YTD performance spread between the market-cap-weighted S&P 500 and its equal-weighted counterpart is among the widest ever seen on a YTD basis through the end of April. Through Friday afternoon, the market-cap-weighted S&P 500 was up 8.26% YTD, while the equal-weighted index was up just 2.13%.  At 6.14 percentage points, the YTD performance gap between the two indices is the second widest since 1990, trailing only the 6.8% percentage point gap in 2020.  Besides 2020, the only other year where the gap was wider than two percentage points was in 1997.  While it’s a small sample size and history doesn’t always repeat itself, we’d note that the S&P 500’s rest-of-year performance was a gain of over 20% in both of those years.  Just saying.

Besides the two other years where the performance gap was significantly wide like this year, what stands out about the chart below is how common it has historically been for the market cap-weighted index to underperform the equal weight index in the first four months of the year. Including this year, the cap-weighted index has only outperformed nine times in the last 34 years.

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Meta (META) reported an earnings triple play earlier this week when it posted better than expected EPS, better than expected sales, and raised forward guidance. Shares rallied 13% on the first trading day after its Q1 report on Wednesday evening, and that came after shares rallied 23% on the first trading day after its last earnings report back in January.

The turnaround for Meta over the last six months has been impressive and also ironic.  Remember, in 2021, founder Mark Zuckerberg did a 180 by putting all the company’s focus into the “metaverse,” going as far as completely renaming the company from Facebook to Meta.  During that transition, META (formerly FB) shares tanked 75% from peak to trough, and the company’s market cap fell from $1+ trillion down to the low $200 billions.

In late 2022, Zuckerberg had seen enough.  On its Q4 2022 call in January, Zuckerberg forgot about the metaverse and put all of his focus on “efficiency.”  Translated, he took the axe to tens of thousands of jobs that were apparently unnecessary and looked to cut expenses everywhere he could while also restructuring the corporate ladder and improving workflows to get the right products to market quicker and cutting products that were going nowhere.  At the same time, the current “AI” craze took hold.  Zuckerberg and the Meta team have been using AI forever to drive clicks, but up until recently, that was known generically as “the algo.”  While Meta actually started mentioning AI on its conference calls a couple of quarters before ChatGPT was released late last year, the stock didn’t start reacting positively to the mentions until ChatGPT became a thing.

Whether it’s known as the algo or “AI,” it doesn’t really matter.  What has mattered is that META’s share price has now risen 167% since its lows late last year, and its market cap is back above $600 billion.  Given this positive response from investors, we’d now expect them to continue to milk the AI tank as much as possible until it stops working.

Below is a look at the number of times that three words — metaverse, AI, and efficiency — have been mentioned on Meta’s quarterly conference calls going back to Q4 2020.  As recently as its Q1 2021 call, these three words weren’t mentioned once on Meta calls!  In mid-2021, we saw both metaverse and AI mentions start to pick up, and metaverse continued to get pushed as the company changed its name from Facebook to Meta.  Mentions of AI started to really pick up in Q2 of last year and they’ve been increasing ever since.  It wasn’t until last quarter that efficiency became the focus with 33 mentions, and we heard it another twenty times on this quarter’s call.

What’s most ironic is that even as Meta has shifted away from the metaverse towards AI and efficiency, we still have to call the company Meta because that’s its official name!  If Zuckerberg had to do it all over again, maybe he would have chosen something like “Efficiency AI” instead of Meta, or maybe even “Eff AI” for short!

Throughout earnings season, we read hundreds of conference call transcripts and then we publish short, succinct recaps of the ones we found the most impactful and interesting.  We published our Conference Call Recap on Meta earlier this week, and you can view it with a Bespoke Institutional (All Access) trial if you’re not yet a member.  You can click here to sign up if you’d like to read our Meta Recap and all of the other ones that have been published this quarter.