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Big Tech Stumbles: Mag 7 Underperforms S&P 500
12 Jan
Summary
- Magnificent 7 stocks lagged the S&P 500, with only two driving gains.
- Slowing profit growth and AI spending questions pressure tech giants.
- Valuations for Big Tech are now more subdued, offering new opportunities.
The dominance of the "Magnificent 7" technology stocks, which previously propelled market gains, has faltered. For the first time since 2022, the majority of these giants underperformed the S&P 500 in the past year, with substantial gains from Alphabet and Nvidia masking weaker performances from others.
This shift is driven by slowing earnings growth and mounting questions about the return on massive artificial intelligence investments. While Magnificent 7 profits are projected to grow about 18% in 2026, this is the slowest pace since 2022 and not significantly better than the 13% anticipated for the rest of the S&P 500.
However, subdued valuations present a new landscape. The Magnificent 7 index now trades at 29 times projected earnings, a notable decrease from earlier in the decade. This suggests a market where individual stock selection within the tech sector is becoming increasingly critical for investors seeking to outperform.
