Jeff Kilburg, KKM Financial, joins 'The Exchange' to discuss his trade ahead of 'Mag 7' earnings.

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Jeff Kilburg, chief investment officer at KKM Financial and CNBC contributor, shared his trading strategy for the 'Mag 7' technology stocks ahead of their earnings reports. Kilburg recommends a pairs trade: selling or trimming positions in Nvidia, which has reached new highs and shows signs of overconcentration, while buying Apple, which he views as a laggard with potential upside if it delivers on artificial intelligence (AI) initiatives.

Kilburg notes that Nvidia's strong momentum has led to significant profits but warns of vulnerability due to its heavy weighting in major indexes. He believes Apple, despite not being cheap and having underperformed recently, could recover if it introduces tangible AI developments. Kilburg also points out the high market cap concentration of the 'Mag 7' stocks in both the Nasdaq 100 and S&P 500.

Jeff Kilburg gives his 'Mag 7' playbook ahead of earnings

So, between the Fed, trade deals and earnings, what is the biggest trading event this week? Let's bring in KKM Financial's Jeff Kilburg. He's also, of course, a CNBC contributor. Jeff, nice to see you. Great to see you, Melissa. You come to us with a pairs trade, Jeff. I did. And this is just an explosive week. We have four of the Mag 7 names, Amazon, Apple, Microsoft, and Meta, of course. But I'm really focused on a pairs trade. I want to sell Nvidia. I know it sounds crazy, Melissa, but Nvidia, a new all-time high of $175. I want to sell Nvidia. Big profits. And the reason is because of the overconcentration. If you see the NASDAQ, we've talked about the NASDAQ, right now it's on its 65th day of being above its 20 moving average. So a little long in the tooth, but this is momentum. This is the V-shaped recovery. So by selling Nvidia, I want to buy Apple, nearly the laggard. Tesla is just below Apple in the Mag 7. So I think there's an opportunity. If you want to short Nvidia, this is not for you. You will have a very hard time shorting Nvidia. But there's an opportunity to either sell, trim position. I blindly bought Nvidia, Melissa, back in April at $92, so I'm taking profits. You could also sell the $175 call going out a month for about $6. So I think you have to be considerate here, and there is going to be a vulnerability as you see overconcentration in Nvidia. Yeah, I think what's interesting about this trade, Jeff, is that you're focusing in on the idiosyncratic nature of the Apple story in that you're not betting necessarily that the AI trade or the AI story falls apart. You're just betting that Apple will get things a little bit more right going forward. You're absolutely right. They have to see something. They have to capture AI somehow, someway. They're not a hyperscaler, so they don't need to spend the money. But they need to deliver something to provide some optimism. We're seeing Apple down about 17% from its all-time high. So there's an opportunity for Apple to run back up to $230, but it has to be tangible. We need something AI, Melissa. You're right. Yeah, but you're not paying. It's not cheap. Apple's not cheap here. Correct. It's not. Look at the Mag 7. Look at the Mag 7. It's a 62% market cap concentration of the Nasdaq 100. It's about 35% as a collective Mag 7 in the S&P 500. So Apple being the laggard, we have to remember, Melissa, that Apple, I know it's had a rough year, but the last couple of years it has been producing. It's been the cash cow. And it would be interesting to see if they make some type of purchase, potentially, in AI. It'd be the biggest purchase since Beats was just $3 billion. Right. Jeff, great to see you.

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