To borrow the famous Jerry Maguire quote, investors are asking Big Tech to “show me the money.”
Driving the news: Since peaking in mid-May, the Magnificent Seven stocks — Apple, Amazon, Nvidia, Meta, Tesla, Alphabet, and Microsoft — are down more than 13%, while the S&P 500 is down only about 2% over the same period. Every Mag 7 stock is now down double digits from its 52-week high.
Catch-up: The Magnificent Seven have been the engine of the stock market's bull run over the last few years. The stocks collectively climbed nearly 76% in 2023 (Nvidia alone surged 239%), while the S&P 500 returned just over 24% for the year.
The Mag 7’s performance accounted for almost two-thirds of the S&P 500's growth that year. Without them, the index would have returned roughly 10% instead of 24%.
By the end of that year, the cumulative Mag 7 market cap was nearly equivalent to the stock markets of Canada, the U.K., and Japan combined.
Why it matters: After years of investors pouring money into these companies based on AI optimism (or more likely AI FOMO), there’s growing pressure to prove that the hundreds of billions of dollars in AI infrastructure capital expenditures will actually translate into profit.
Amazon, Google, Microsoft, and Meta alone are expected to spend over US$650 billion on AI infrastructure in 2026, a 60% increase from last year.
Our take: With OpenAI and Anthropic set to hit public markets over the next year, the concentration of capital parked in tech stocks (regardless of their profitability) is likely going up, not down.—LA
