For years, the “Magnificent Seven” was one of the best bets on Wall Street.
This group, which includes Apple, Alphabet, Tesla, Nvidia, Meta Platforms, Microsoft, and Amazon, bounced off the 2022 bear market, and nearly all of them have established themselves as major players in AI.
However, after a brilliant three-year run, the Magnificent Seven is now showing signs of fatigue. As you can see from the chart below, all seven of these stocks have fallen this year, and they’ve all underperformed the S&P 500 this year as well.
2026 has been a challenging year for tech investors. Concerns about AI disruption have punished software stocks this year, which explains why Microsoft is the biggest loser in the group, yet investors are also afraid that the big tech companies are spending too much on AI infrastructure. The top four hyperscalers, Amazon, Microsoft, Alphabet, and Meta Platforms, are set to spend close to $700 billion in capital expenditures this year, much of it in AI. That is a whopping sum, and even for companies as big as this group, it is going to take years to pay back that investment. Investors are skeptical that it will pay off.
There are some signs that investors could be rotating out of the Magnificent Seven in anticipation of the bull market broadening. The Invesco S&P SmallCap Information Technology ETF (PSCT 2.55%), for example, is up 6%, bucking the broader trend in the tech sector. The Russell 2000, the best-known small-cap index, is also flat this year, outperforming the S&P 500, showing investors have been diversifying to small caps.
Of course, sectors like energy have emerged as winners due to the war in Iran.
Image source: Getty Images.
The Magnificent Seven is down but not out
While investor sentiment toward the Magnificent Seven may have shifted, most of these companies continue to deliver impressive results. Additionally, valuations for the elite group of tech stocks are looking attractive.
The chart below excludes Tesla, which has a price-to-earnings ratio above 300, and shows that these stocks now trade on par with the S&P 500, which has a P/E of 25.6.
AAPL PE Ratio data by YCharts
Despite the sell-off and nervousness around AI spending and disruption, these companies retain the same sector leadership that has made them such big winners on the stock markets. All seven are reporting double-digit revenue growth, outgrowing the S&P 500.
Today’s Change
(-2.17%) $-3.72
Current Price
$167.52
Key Data Points
Market Cap
$4.2T
Day’s Range
$167.01 – $170.97
52wk Range
$86.62 – $212.19
Volume
196M
Avg Vol
177M
Gross Margin
71.07%
Dividend Yield
0.02%
The best buying opportunity in the Magnificent Seven
There’s a good case that several of the Magnificent Seven stocks are undervalued, but one stands head and shoulders above the rest. That’s Nvidia.
As you can see from the chart above, Nvidia is still the most expensive stock in the group except for Tesla, but that changes when you look at forward estimates, as Nvidia is also the fastest-growing company in the Magnificent Seven. Analysts see Nvidia’s adjusted earnings per share growing from $4.77 last year to $8.29, meaning the stock trades at a forward P/E of less than 21.
That valuation implies that investors think the AI boom will soon run out of steam, which doesn’t seem to be the case. In fact, CEO Jensen Huang forecast $1 trillion in revenue over the next two years, implying that the company’s revenue growth rate will remain strong. Nvidia has even reported accelerating revenue growth over the past two quarters, bucking fears that its growth would gradually slow after the initial spike in demand.
It’s unclear when market sentiment will shift, and Nvidia stock could certainly head lower, especially if the news out of Iran doesn’t improve. However, at the current valuation, the stock will almost certainly pay off on the long run as even a recession is unlikely to derail growth in the AI sector.
