Magnificent 7’s Grip on the Stock Market Begins to Weaken

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(Bloomberg) In recent years, a straightforward approach helped many investors outperform the market: investing heavily in the largest US tech companies.

This tactic delivered impressive returns for quite some time, but that changed last year. For the first time since the Federal Reserve began raising interest rates in 2022, most of the so-called Magnificent 7 tech giants lagged behind the S&P 500 Index. Although the Bloomberg Magnificent 7 Index climbed 25% in 2025—outpacing the S&P 500’s 16% gain—this was largely due to significant advances by Alphabet Inc. and Nvidia Corp.

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Many experts on Wall Street expect this trend to persist into 2026, as earnings growth slows and doubts emerge about the returns from substantial investments in artificial intelligence. So far, their predictions have held true: the Magnificent 7 index has edged up just 0.5%, while the S&P 500 has gained 1.8% at the start of the year. As a result, careful selection among these tech giants has become increasingly important.

“This market isn’t uniform,” commented Jack Janasiewicz, chief portfolio strategist at Natixis Investment Managers Solutions, which oversees $1.4 trillion in assets. “Simply buying the whole group means that underperformers can cancel out the winners.”

Over the past three years, technology leaders have driven the bull market, with Nvidia, Alphabet, Microsoft, and Apple together responsible for more than a third of the S&P 500’s gains since October 2022. However, enthusiasm for these giants is waning as investors show more interest in the broader index.

With growth in Big Tech’s profits decelerating, investors are no longer satisfied with mere promises of AI-driven prosperity—they want tangible results. According to Bloomberg Intelligence, profits for the Magnificent 7 are forecast to rise about 18% in 2026, the slowest rate since 2022 and only slightly ahead of the 13% increase expected for the other 493 S&P 500 companies.

“We’re already witnessing a wider spread in earnings growth, and we anticipate this will continue,” said David Lefkowitz, head of US equities at UBS Global Wealth Management. “Technology isn’t the only sector with opportunities.”

One reason for optimism is that the group’s valuations are more restrained than in the past. The Magnificent 7 index trades at 29 times projected earnings for the next year, down from multiples in the 40s earlier in the decade. By comparison, the S&P 500 trades at 22 times expected earnings, and the Nasdaq 100 at 25 times.

Looking Ahead: What’s in Store for the Magnificent 7

Nvidia

Nvidia, the leading producer of AI chips, faces mounting competition and concerns about whether its largest clients will maintain their spending. The company’s stock has soared 1,165% since the end of 2022, but has dropped 11% since its peak in late October.

Competitor Advanced Micro Devices has secured data center contracts from OpenAI and Oracle, while Nvidia’s customers, including Alphabet, are increasingly using their own custom processors. Nevertheless, Nvidia’s sales continue to surge as demand for its chips exceeds supply.

Wall Street remains optimistic: 76 out of 82 analysts rate the stock a buy, and the average price target suggests a potential 39% increase over the next year, the highest among the group, according to Bloomberg data.

Microsoft

Microsoft underperformed the S&P 500 for a second straight year in 2025. As one of the largest spenders on AI, the company is expected to invest nearly $100 billion in capital expenditures this fiscal year, ending in June, with estimates rising to $116 billion the following year.

While the expansion of data centers has boosted Microsoft’s cloud business, the company has struggled to persuade customers to pay for AI-enhanced software. Investors are eager to see these investments translate into profits, notes Brian Mulberry, client portfolio manager at Zacks Investment Management.

“Some investors are seeking stronger financial discipline and clearer profitability from AI initiatives,” Mulberry explained.

Apple

Apple has taken a more cautious approach to AI than its peers, which led to a nearly 20% drop in its stock through early August last year. However, the company’s shares rebounded 34% by year-end as investors favored its lower-risk strategy. Robust iPhone sales further reassured shareholders of the product’s enduring popularity.

For Apple, accelerating growth is essential this year. Although momentum has slowed, the company narrowly avoided its longest losing streak since 1991. Revenue is projected to increase by 9% in fiscal 2026, the fastest growth since 2021. With shares trading at 31 times estimated earnings—the second highest in the Magnificent 7 after Tesla—continued growth will be necessary to sustain the rally.

Alphabet

A year ago, OpenAI was viewed as the frontrunner in AI, raising concerns that Alphabet might fall behind. Now, Google’s parent company is widely regarded as a leader in the AI space.

Alphabet’s latest Gemini AI model has received strong reviews, alleviating worries about OpenAI’s dominance. Its tensor processing unit chips are also seen as a potential driver of future revenue, possibly challenging Nvidia’s position in the AI chip market.

Alphabet’s stock surged over 65% last year, the best among the Magnificent 7. However, with a market value nearing $4 trillion and shares trading at about 28 times estimated earnings—well above the five-year average—analysts expect only a modest 3.9% gain this year.

Amazon.com

Amazon was the weakest performer among the Magnificent 7 in 2025, marking its seventh consecutive year in that position. However, the company has started 2026 strongly and is currently leading the group.

Much of the optimism centers on Amazon Web Services, which recently posted its fastest growth in years. Concerns about AWS lagging behind competitors and Amazon’s aggressive AI investments—including robotics to boost warehouse efficiency—have weighed on the stock. Investors are hopeful that these efficiency improvements will soon pay off, potentially turning Amazon from a laggard into a leader.

“Automation in warehouses and more efficient shipping will be game-changers,” said Clayton Allison, portfolio manager at Prime Capital Financial. “It reminds me of Alphabet last year, which was overlooked amid competition fears, then surged ahead.”

Meta Platforms

Meta exemplifies how investor sentiment has shifted regarding heavy AI spending. CEO Mark Zuckerberg has pursued costly acquisitions and talent, including a $14 billion investment in Scale AI and hiring its CEO as Meta’s chief AI officer.

This aggressive strategy was initially accepted by shareholders, but sentiment changed after Meta raised its 2025 capital expenditure forecast to $72 billion and signaled even higher spending in 2026. After peaking in August with a 35% gain for the year, Meta’s stock has since fallen 17%. Proving that these investments can boost profits will be crucial for Meta this year.

Tesla

Tesla’s shares performed worst among the Magnificent 7 in the first half of 2025, but rebounded over 40% in the second half as CEO Elon Musk shifted focus from declining electric vehicle sales to autonomous driving and robotics. The rally has pushed Tesla’s valuation to nearly 200 times projected earnings, making it the second most expensive stock in the S&P 500 after Warner Bros. Discovery.

After two years of flat revenue, Tesla is expected to return to growth in 2026, with revenue forecast to rise 12% this year and 18% next year, following an estimated 3% decline in 2025.

Despite this, Wall Street remains cautious, with the average analyst price target predicting a 9.1% drop in Tesla’s shares over the next year, according to Bloomberg data.

Reporting assistance by Carmen Reinicke, Matt Turner, and Jordan Fitzgerald.

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