Magnificent 7’s stock market dominance shows signs of cracking

NEW YORK – To beat the market in recent years, many investors applied a simple strategy: Load up on the biggest US technology stocks. 

It paid handsomely for a long time. But in 2025, it did not. For the first time since 2022, when the US Federal Reserve started raising interest rates, the majority of the Magnificent 7 tech giants performed worse than the S&P 500 Index.

While the Bloomberg Magnificent 7 Index rose 25 per cent in 2025, compared with 16 per cent for the S&P 500, that was only because of the enormous gains by Alphabet and Nvidia.

Many Wall Street pros see that dynamic continuing in 2026, as profit growth slows and questions about payoffs from heavy artificial intelligence spending rise. So far, they have been right, with the Magnificent 7 index up just 0.5 per cent and the S&P 500 climbing 1.8 per cent to start 2026. Suddenly stock picking within the group is crucial. 

“This isn’t a one-size-fits-all market,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, which has US$1.4 trillion (S$1.8 trillion) in assets. “If you’re just buying the group, the losers could offset the winners.”

With Big Tech’s earnings growth slowing, investors are no longer content with promises of artificial intelligence riches – they want to start seeing a return.

Profits for the Magnificent 7 are expected to climb about 18 per cent in 2026, the slowest pace since 2022 and not much better than the 13 per cent rise projected for the other 493 companies in the S&P 500, according to data compiled by Bloomberg Intelligence.

“We’re already seeing a broadening of earnings growth, and we think that’s going to continue,” said Mr David Lefkowitz, head of US equities at UBS Global Wealth Management. “Tech is not the only game in town.”

One source of optimism is the group’s relatively subdued valuations. The Magnificent 7 index is priced at 29 times profits projected over the next 12 months, well below the 40s multiples earlier in the decade.

The S&P 500 is trading at 22 times expected earnings, and the Nasdaq 100 Index is at 25 times. 

Here is a look at expectations for the year ahead.

Nvidia

The dominant AI chipmaker is under pressure from rising competition and concerns about the sustainability of spending by its biggest customers. The stock is up 1,165 per cent since the end of 2022, but it has lost 11 per cent since its Oct 29 record.

Rival Advanced Micro Devices has won data centre orders from OpenAI and Oracle, and Nvidia customers like Alphabet are increasingly deploying their own custom-made processors. Still, its sales continue to race ahead as demand for chips outstrips supply. 

Wall Street is bullish, with 76 of the 82 analysts covering the chipmaker holding buy ratings. The average analyst price target implies a roughly 39 per cent gain over the next 12 months, the best among the group, according to data compiled by Bloomberg.

Microsoft

2025 was the second consecutive year Microsoft underperformed the S&P 500. One of the biggest AI spenders, it is expected to invest nearly US$100 billion in capital expenditures during its current fiscal year, which ends in June. That figure is projected to rise to US$116 billion the following year, according to the average of analyst estimates.

The data centre build-out is fuelling a resurgence in revenue growth in Microsoft’s cloud computing business, but the company has not had as much success in getting customers to pay for the AI services infused into its software products. Investors want to start seeing returns on those investments, according to Zacks Investment Management client portfolio manager Brian Mulberry.

Apple

Apple has been far less aggressive with its AI ambitions than the rest of the Magnificent 7. The stock was punished for it in 2025, falling almost 20 per cent through the start of August. 

But then it caught on as an “anti-AI” play, soaring 34 per cent through the end of 2025 as investors rewarded its lack of AI spending risk. At the same time, strong iPhone sales reassured investors that the company’s most important product remains in high demand. 

Accelerating growth will be the key for Apple shares in 2026. Its momentum has slowed recently, the stock closed higher on Jan 9, narrowly avoiding matching its longest losing streak since 1991.

However, revenue is expected to expand 9 per cent in fiscal 2026, which ends in September, the fastest pace since 2021.

With the stock valued at 31 times estimated earnings, the second highest in the Magnificent 7 after Tesla, it will need the push to keep the rally going.

Alphabet

A year ago, OpenAI was seen as leading the AI race and investors feared Alphabet would get left behind. Today, Google’s parent is a consensus favourite, with dominant positions across the AI landscape. 

Alphabet’s latest Gemini AI model received rave reviews, easing concerns about OpenAI. And its tensor processing unit chips are considered a potential significant driver of future revenue growth, which could eat into Nvidia’s commanding share of the AI semiconductor market. 

The stock rose more than 65 per cent in 2025, the best performance in the Magnificent 7.

But how much more can it run? The company is approaching US$4 trillion in market value, and the shares trade at around 28 times estimated earnings, well above their five-year average of 20. The average analyst price target projects just a 3.9 per cent in 2026. 

Amazon

The e-commerce and cloud computing giant was the weakest Magnificent 7 stock in 2025, its seventh straight year in that position. But Amazon has charged out of the gate in early 2026 and is leading the pack.

Much of the optimism surrounding the company is based on Amazon Web Services (AWS), which posted its fastest growth in years in the company’s most recent results.

Concerns that AWS was falling behind its rivals has pressured the stock, as has the company’s aggressive AI spending, which includes efforts to improve efficiency at its warehouses, in part by using robotics.

Investors expect the efficiency push to start paying off before long, which could make this the year the stock goes from laggard to leader. 

“Automation in warehouses and more efficient shipping will be huge,” said Mr Clayton Allison, portfolio manager at Prime Capital Financial, which owns Amazon shares. “It hasn’t got the love yet, but it reminds me of Alphabet last year, which was sort of left behind amid all the concerns about competition from OpenAI, then really took off.”

Meta Platforms

Perhaps no stock in the group shows how investors have turned sceptical about lavish AI spending more than Meta. Chief executive Mark Zuckerberg has pushed expensive acquisitions and talent hires in pursuit of his AI ambitions, including a US$14 billion investment in Scale AI in which Meta also hired the start-up’s chief executive Alexandr Wang to be its chief AI officer.

That strategy was fine with shareholders – until it was not. The stock tumbled in late October after Meta raised its 2025 capital expenditures forecast to US$72 billion and projected “notably larger” spending in 2026.

When the shares hit a record in August, they were up 35 per cent for the year, but they have since dropped 17 per cent. Demonstrating how that spending is boosting profits will be critical for Meta in 2026.

Tesla

Tesla’s shares were the worst performers in the Magnificent 7 through the first half of 2025, but then soared more than 40 per cent in the second half as CEO Elon Musk shifted focus from slumping electric vehicle sales to self-driving cars and robotics.

The rally has Tesla’s valuation at almost 200 times estimated profits, making it the second most expensive stock in the S&P 500 behind takeover target Warner Bros Discover.

After two years of stagnant revenue, Tesla is expected to start growing again in 2026. Revenue is projected to rise 12 per cent in 2026 and 18 per cent in 2027, following an estimated 3 per cent contraction in 2025, according to data compiled by Bloomberg.

Still, Wall Street is pessimistic about Tesla shares in 2026. The average analyst price target projects a 9.1 per cent decline over the next 12 months, data compiled by Bloomberg shows. BLOOMBERG