U.S. stocks remain deep in the throes of a major rotation heading into the teeth of the second-quarter earnings season, and the traditional August lull that follows, as investors take money from highflying tech sector and spread that cash across a host of old-economy bets.
What’s happening alongside that “great rotation,” however, is also interesting, and likely keeping stocks afloat amid the broader tech declines.
The Magnificent Seven stocks, the market’s biggest and most influential names in the artificial intelligence trade, have risen 13% from their recent June lull, powered by a 20% surge in Apple, a 25.5% climb for Meta Platforms, and a 12% gain for beaten-down Microsoft.
Those gains, in fact, have come amid a brutal selloff in the chip sector, which has seen the PHLX Semiconductor index fall more 13% since its late June peak, paced by a 25% pullback for Micron Technology, and a 25% decline for South Korea’s KOSPI index, led by massive declines for market leaders SK Hynix and Samsung.
“We’re not seeing a broad tech selloff but rather a rotation away from chips and into old Magnificent Seven favorites,” said Raffi Boyadjian, lead market analyst at XM. “Apple led the way among the Big Tech, gaining 4% to close at a new all time high, as the iPhone maker was boosted after the company received approval in China for Apple Intelligence.”
Curiously, two major expected boosts for the chip trade, have yet to support the broader market pullback. ASML, which makes chipmaking machines, raised its 2026 revenue forecasts again earlier this week, and new spending and sales projections from Taiwan Semiconductor Manufacturing Co., Nvidia’s main supplier,came earlier on Thursday.
Bank of America’s closely-watched survey of global fund managers, meanwhile, indicated that while most remain bullish on stocks over the next 12 months, with the biggest overweight allocation to the U.S. since December of 2024, they also see the semiconductor trade as by far the most crowded in the market.
But the survey also noted that “no one is short” the biggest trade of the year: “asked if AI stocks are in a bubble, 48% said no (vs. 43% yes), asked if an AI hyperscalers will announce a capex cut, 61% said no (vs. 28% yes).”
That view likely underscores the importance of the tech earnings season, and the Mag 7 names in particular, which kicks off next week with updates from Alphabet and Tesla as well as chip makersIntelandTexas Instruments.
But the concentration risk hasn’t gone away, either.
Two stocks, Micron and Nvidia, will contribute a staggering 40% of S&P 500 earnings growth in the second quarter, according to Goldman Sachs’ estimates.
The broader AI infrastructure complex, meanwhile, will contribute nearly two-thirds of the 22% earnings growth that Goldman predicts for the benchmark over the three months ending in June.
Anthony Saglimbene, chief market strategist at Ameriprise, says the market is working through “pockets of positioning stress and higher oil prices“ heading into the earnings rush, where he says “the bar is elevated, raising the stakes for corporate guidance to justify current valuations.“
And “bubble” concerns linger in the background.
“We count at least four of the six bubble elements present today to varying degrees,” he said. “Whether that constitutes a bubble or a sustainable investment cycle, for now, depends on whether AI revenue ultimately justify the spending.”
“That’s why Q2 earnings and the profit updates ahead will be ever more consequential in shaping the bubble debate,” he added.
Right now, the market is retreating to the spenders, rather than the suppliers. That, in some ways, feels like the ground is a bit more solid than it was a month ago.
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