In recent years, many investors have adhered to a simple strategy to outperform the market: heavily overweighting U.S. mega-cap technology stocks. While this strategy delivered substantial returns for a long period, it lost its luster in 2025. For the first time since the Federal Reserve began its interest rate hiking cycle in 2022, the majority of the "Magnificent Seven" have underperformed the S&P 500 index. Although an index tracking the group rose 25% in 2025, surpassing the S&P 500's 16% gain, this increase was entirely driven by the powerful performance of just two companies: Alphabet (GOOGL.US) and NVIDIA (NVDA.US). Many Wall Street professionals anticipate this divergence will persist into 2026, as profit growth for the tech giants slows and skepticism grows regarding the returns on massive AI investments. Early-year performance appears to confirm their judgment—the Magnificent Seven index has risen a mere 0.5%, while the S&P 500 has climbed 1.8%. Against this backdrop, meticulous stock selection within the group has become critically important.
"The market is no longer a place where one single strategy works for all," said Jack Janasiewicz, Chief Portfolio Strategist at Natixis Investment Managers Solutions, which manages $1.4 trillion in assets. "Blindly buying the entire basket of giants risks having losses in some stocks cancel out gains from others." This three-year bull market, led by technology giants, has seen just four companies—NVIDIA, Alphabet, Microsoft (MSFT.US), and Apple (AAPL.US)—contribute over one-third of the S&P 500's gains since the rally began in October 2022. However, as market liquidity begins flowing to other constituents of the S&P 500, investor enthusiasm for the tech titans is cooling. With slowing earnings growth at the large-cap tech firms, investors are no longer satisfied with the promise of an "AI windfall" and are demanding tangible returns.
Compiled data indicates that the Magnificent Seven's profit growth for 2026 is projected to be around 18%, the slowest pace since 2022. Compared to the expected 13% growth for the other 493 components of the S&P 500, their advantage has narrowed significantly. "We are already seeing a broadening of corporate earnings growth, and this trend is set to continue," noted David Lefkowitz, Head of U.S. Equities at UBS Global Wealth Management. "The technology sector is no longer the sole protagonist in the market." A sliver of optimism remains for the tech giants, partly because their valuations have retreated relative to historical highs. Currently, the Magnificent Seven index trades at a forward P/E ratio of 29, well below peaks above 40 earlier in the decade. By comparison, the S&P 500 trades at 22 times forward earnings, and the Nasdaq 100 index at 25 times.
Here is the 2026 outlook for each of the Magnificent Seven: NVIDIA, the dominant AI chipmaker, faces pressures from intensifying competition and concerns about the sustainability of spending by its largest customers. Although the stock has soared 1165% since the end of 2022, it has fallen 11% since hitting a record high on October 29 last year. Competitor AMD (AMD.US) has secured data center chip orders from OpenAI and Oracle (ORCL.US), while major NVIDIA customers like Alphabet are accelerating the deployment of their own custom chips. Nevertheless, NVIDIA's revenue continues to grow rapidly, buoyed by a market characterized by chip shortages. Wall Street remains optimistic; of the 82 analysts covering the stock, 76 maintain a "Buy" rating. The average analyst price target implies approximately 39% upside over the next 12 months, the highest potential among the seven giants.
2025 marked the second consecutive year that Microsoft underperformed the S&P 500. As a major spender in AI, Microsoft anticipates capital expenditures nearing $100 billion for the fiscal year ending June 2026. Analysts, on average, expect this figure to climb further to $116 billion in the following fiscal year. Data center expansion has helped reinvigorate growth in Microsoft's cloud computing revenue, but the company has had limited success in convincing customers to pay a premium for software integrated with AI features. Brian Mulberry, Client Portfolio Manager at Zacks Investment Management, stated that investors are waiting for these massive investments to translate into concrete returns. "We are seeing some investors seek out companies with superior cash flow management and a clearer path to profitability for their AI initiatives," Mulberry added.
Among the Magnificent Seven, Apple has adopted the most conservative approach towards AI. This strategy weighed on its stock price in the first half of 2025, with shares down nearly 20% by early August. However, Apple then transformed into an "anti-AI play," attracting investor favor by avoiding the risks associated with heavy AI investments, and its stock surged 34% by the end of 2025. Concurrently, robust iPhone sales reassured investors that demand for its core product remains strong. For Apple, the key to stock appreciation in 2026 lies in accelerating earnings growth. Although a rally last Friday helped it narrowly avoid its longest losing streak since 1991, the recent upward momentum has noticeably slowed. The market projects Apple's revenue will grow 9% in the fiscal year ending September 2026, which would be its fastest pace since 2021. With a forward P/E of 31, second only to Tesla (TSLA.US) among the seven, Apple needs to deliver standout financial performance to sustain its gains.
A year ago, the market perceived OpenAI as leading the AI race, with investors worried Alphabet might be left behind. Today, Alphabet is widely regarded as a "darling," demonstrating leadership across multiple AI fronts. Its latest Gemini AI model has received widespread praise, alleviating fears it couldn't compete with OpenAI. Furthermore, its custom Tensor Processing Units (TPUs) are seen as a major future revenue driver, potentially even eroding NVIDIA's dominant market share in AI semiconductors. In 2025, Alphabet's stock surged over 65%, making it the best performer among the seven. But can this rally continue? The company's market capitalization is approaching $4 trillion, and its forward P/E of about 28 is significantly higher than its five-year average of 20. The average analyst price target suggests only 3.9% upside for the stock in 2026.
As an e-commerce and cloud computing behemoth, Amazon.com (AMZN.US) was the worst performer among the Magnificent Seven in 2025, marking its seventh consecutive year at the bottom. However, Amazon's shares have staged a strong rebound early in 2026, leading the pack. The renewed optimism largely stems from its cloud business, AWS, which posted its fastest growth rate in years in the latest earnings report. Previously, concerns that AWS was lagging behind competitors, combined with heavy investments in AI (including using robotics to enhance warehouse operations), had pressured the stock. Investors anticipate that Amazon's efficiency initiatives will soon bear fruit, potentially making 2026 the year its stock completes a dramatic turnaround from laggard to leader. "Warehouse automation and more efficient logistics delivery will be a massive growth area for Amazon," said Clayton Allison, Portfolio Manager at Prime Capital Financial, which holds Amazon stock. "The market hasn't fully priced in this value yet, but it reminds me of Alphabet last year—initially overlooked due to competitive fears, before its stock skyrocketed."
Meta Platforms, Inc. (META.US) exemplifies investor skepticism towards massive AI investments. CEO Mark Zuckerberg's ambitious AI plans, involving major acquisitions and talent recruitment—including a $14 billion investment in AI company Scale AI and hiring its CEO, Alexandr Wang, to lead Meta's AI division—were initially applauded by shareholders. However, the optimism was short-lived. In late October 2025, Meta raised its full-year capital expenditure forecast to $72 billion and projected a "significant increase" for 2026, causing its stock to plummet. For 2025, Meta's shares had been up 35% when they hit a record high in August, but have since retreated by 17%. Meta's key challenge in 2026 will be to convincingly demonstrate that its enormous investments are tangibly driving profit growth.
In the first half of 2025, Tesla's stock was the worst performer among the seven. The situation reversed dramatically in the second half, with shares surging over 40% as CEO Elon Musk shifted strategic focus from sluggish electric vehicle sales to autonomous vehicles and robotics. Following this rally, Tesla's forward P/E ratio reached a staggering 200, second only to acquisition target Warner Bros. Discovery (WBD.US) among S&P 500 constituents. After two years of stagnant revenue, the market expects Tesla to return to growth in 2026. Data suggests Tesla's revenue likely contracted by 3% in 2025, but is projected to grow 12% in 2026 and 18% in 2027. Despite this, Wall Street remains pessimistic about Tesla's stock performance for 2026. The average analyst price target implies a 9.1% decline over the next 12 months.
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