A growing number of Wall Street strategists are lowering their S&P forecasts for the year.
What hasn't been a feature in many of these calls is a more bearish outlook for the "Magnificent Seven" and Big Tech more broadly. This stands out given that bullishness on tech and artificial intelligence drove S&P 500 targets higher over the past two years and has also led to the recent 10% correction in the benchmark index.
"Elevated capex is a clear and present risk amid ongoing concerns around AI monetization, but [Big Tech] valuations are the most reasonable in almost two years after the group led the recent selloff, and we think they will still deliver solid earnings growth this year," Barclays head of US equity strategy Venu Krishna wrote in a note cutting his year-end S&P 500 target to 5,900 from 6,600. Krishna, like many on Wall Street, expects that slower economic growth and higher inflation will weigh on stocks.
An unwinding of the AI hype trade has been at the forefront of the past month's sell-off. For instance, on Wednesday, as more news on tariffs shook stocks, shares of Nvidia (NVDA), Tesla (TSLA), Alphabet (GOOG, GOOGL), Amazon (AMZN), Meta (META), and Microsoft (MSFT) all fell more than the S&P 500's 1.3% decline. Even Apple (AAPL), which has held steadier than the rest of its Magnificent Seven cohort, fell roughly 15% off its most recent all-time high.
Big Tech has faced growing investor criticism about its ballooning AI spend and whether or not it will eventually turn into future profits. The year also included a massive drawdown in some large tech names, including Nvidia, following the release of a cheaper AI model from Chinese company DeepSeek.
But with fears of a broader economic slowdown swirling, strategists have argued that Big Tech's steady earnings growth and cash-filled balance sheets could make it a place to hide as policy uncertainty comes to the forefront during upcoming earnings reports over the next two months.
Citi US equity strategist Scott Chronert told Yahoo Finance that when comparing valuations across their 20-year average, the seven tech stocks are actually now "cheaper" than the other 493 stocks in the S&P.
"We think their fundamentals are in pretty good shape in terms of expected growth trajectories for this year," Chronert told Yahoo Finance. "We're not sure we can say that about the rest of the index as we go through tariffs and as we go through signs of economic sluggishness. So, all told, our view here is that the megacap growth cohort, led by the Mag Seven, takes on a little bit more of a growth-as-defensive bias as we go into the quarterly reporting period."
Morgan Stanley's Mike Wilson wrote in a note to clients on Sunday that the weakening US dollar — which could help US-centric companies this earnings season — and stabilizing earnings revisions for the Magnificent Seven could help bring investor flows back to US stocks.
"The most notable change here is that Mag 7 earnings revisions look to be stabilizing and potentially bottoming around 0%," Wilson wrote. "This could halt the underperformance of these mega cap stocks in the near term as we head into earnings season."
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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