The once-unified "Magnificent Seven" bloc that jointly propelled the U.S. stock market is now disintegrating, as this previously monolithic group of mega-cap tech stocks is no longer viewed by investors as a single asset class. With market sentiment toward the artificial intelligence frenzy becoming more rational and cautious, the fortunes of these trillion-dollar giants have diverged significantly over the past year. In the recently concluded year of 2025, only Alphabet and NVIDIA managed to outperform the S&P 500 index. As the new year unfolds, this divergence persists, with five of the "Magnificent Seven" now trailing the broader market benchmark. The AI-driven trading strategy that once dominated the market is undergoing a transformation, with capital no longer flooding indiscriminately into the entire sector but instead flowing into more selective bets.
This breakdown in correlation is actively reshaping the market landscape. Investment managers note that the "Magnificent Seven"—comprising Microsoft, Meta, Apple, Amazon.com, Tesla Motors, Alphabet, and NVIDIA—are no longer synonymous with perpetual market outperformance. As the AI arms race intensifies, these companies are demonstrating varied commitments to strategic investment and core business growth, resulting in their stock price trajectories moving out of sync. David Bahnsen, Chief Investment Officer at Bahnsen Group, stated bluntly: "The correlation between them has broken down. Their only commonality now is simply their trillion-dollar market valuations." The Differentiation and Restructuring of AI Trades As the bull market evolves, the investment thesis surrounding artificial intelligence has also transformed. Some investors anticipate that the AI dividend will spread to sectors like healthcare, while others continue to double down on chip manufacturers or energy companies. Against this backdrop, the formerly tight-knit "Magnificent Seven" cohort is being redefined by the market, potentially shrinking to a "Fab Five" or even a "Fantastic Four." Bank of America strategist Michael Hartnett, who coined the term in 2023 by referencing the classic western film *The Magnificent Seven*, points out that the market is now beginning to broaden. "The next 'Magnificent Seven' will be those mega-caps that can demonstrate AI applications are fundamentally reshaping their vast businesses," he noted. Hartnett also reminded investors to recall the film's conclusion:
"Don't forget, in that movie, only a few survived."
Winners and Losers Within the Giants Currently, these tech behemoths are at vastly different stages of development. Amazon.com, Alphabet, Microsoft, and Meta have transformed into "hyperscalers," investing hundreds of billions of dollars to train new AI models, build data centers, and expand cloud computing capabilities. Meanwhile, NVIDIA continues to dominate the market for chips required to run the most advanced AI models. In contrast, other members appear to be lagging. Apple's stock underperformed the S&P 500 last year, facing criticism for its relatively modest investment in AI and perceived lag behind competitors. Tesla Motors, a former market darling, has also significantly trailed its peers, primarily hampered by a slowdown in electric vehicle sales.
Michael Arone, Chief Investment Strategist at State Street Investment Management, commented:
"They are all in different phases. It used to be a rising tide lifts all boats; now we are going to see winners and losers."
Retail Exodus and Historical Cycles Beyond the shifting perspectives of professional institutions, enthusiasm among retail investors is also cooling. According to data from Vanda Research, the proportion of total trading volume in "Magnificent Seven" stocks attributable to retail investors declined notably in 2025 compared to 2023 and 2024. Tesla Motors, a long-time retail favorite, saw the sharpest drop in retail trading activity. In 2025, its average daily retail turnover fell by 43% from its peak two years prior. Despite their diverging paths, the collective influence of these seven companies on the overall market remains immense. According to Dow Jones Market Data, they still account for approximately 36% of the S&P 500's total market capitalization. Wall Street's history is replete with popular investment portfolio nicknames that eventually became outdated, from the Nifty Fifty of the 1960s, to the retailer-based WATCH, and previous tech groupings like FANG and FAANG. Arone believes that while the "Magnificent Seven" may have lost the initial rationale that bound them together in investors' minds, no other stock grouping has yet emerged to take its place. "There isn't a suitable replacement right now," he said. "But I think there could be."
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