Magnificent 7 fall behind market for first time since 2022

The investment playbook that worked for years just stopped working. Buying shares in America’s largest technology companies used to be a sure bet, but 2025 told a different story.

For the first time since 2022, when the Federal Reserve began hiking interest rates, most of the Magnificent 7 tech companies failed to beat the S&P 500 Index. The Bloomberg Magnificent 7 Index went up 25% in 2025, while the S&P 500 climbed 16%. But those gains came almost entirely from just two companies: Alphabet Inc. and Nvidia Corp.

Experts on Wall Street believe this pattern will stick around in 2026. They point to slower profit growth and growing doubts about whether massive spending on artificial intelligence will actually pay off.

Early signs support their view. The Magnificent 7 index has risen only 0.5% so far this year, while the S&P 500 has gained 1.8%. Picking the right tech stock now matters more than ever.

The three-year bull market has been driven by tech giants. Nvidia, Alphabet, Microsoft Corp. and Apple Inc. alone made up more than one-third of the S&P 500’s gains since October 2022. But excitement about these companies is fading as interest spreads across the broader market.

Tech giants face earnings slowdown

As Big Tech’s earnings growth slows down, investors want more than promises about AI riches. They want actual returns. The Magnificent 7 are expected to see profits grow about 18% in 2026, the slowest rate since 2022. That’s barely better than the 13% growth projected for the other 493 companies in the S&P 500, according to Bloomberg Intelligence data.

One bright spot is valuations. The Magnificent 7 index trades at 29 times projected profits over the next 12 months, well below the 40s multiples seen earlier in the decade. The S&P 500 trades at 22 times expected earnings, while the Nasdaq 100 Index sits at 25 times.

Nvidia, the leading AI chipmaker, faces pressure from growing competition and worries about whether its biggest customers will keep spending. Still, Wall Street remains bullish. Of the 82 analysts covering Nvidia, 76 recommend buying. The average price target suggests a roughly 39% gain over the next 12 months, the best among the group.

Microsoft spent 2025 underperforming the S&P 500 for the second straight year. The data center expansion is boosting revenue growth in Microsoft’s cloud business, but customers aren’t paying as much for AI services built into its software products.

Apple took a different path with less aggressive AI ambitions. Revenue is expected to expand 9% in fiscal 2026, ending in September, the fastest pace since 2021. With the stock valued at 31 times estimated earnings, the second highest in the Magnificent 7 after Tesla, it needs that growth to keep going.

Amazon leads the pack in early 2026

Alphabet went from worry to Wall Street favorite in a year. The stock rose more than 65% last year, the best performance in the Magnificent 7. But shares trade at around 28 times estimated earnings, well above their five-year average of 20. The average analyst price target projects just a 3.9% gain this year.

Amazon was the weakest Magnificent 7 stock in 2025, marking its seventh straight year in that position. But the company has started 2026 strong. Concerns about AWS falling behind rivals had pressured the stock, along with aggressive AI spending that includes warehouse automation using robotics.

Meta Platforms shows how investors have grown skeptical of big AI spending. The stock fell in late October after Meta raised its 2025 capital expenditures forecast to $72 billion and projected “notably larger” spending in 2026. After hitting a record in August with a 35% gain for the year, shares have since dropped 17%.

Tesla’s shares were the worst performers in the Magnificent 7 through the first half of 2025, then jumped more than 40% in the second half as CEO Elon Musk shifted focus from slumping electric vehicle sales to self-driving cars and robotics.

The stock now trades at almost 200 times estimated profits, making it the second most expensive stock in the S&P 500 behind takeover target Warner Bros. Discovery Inc.

After two years of flat revenue, Tesla is expected to start growing again in 2026. Revenue is projected to rise 12% this year and 18% next year, following an estimated 3% drop in 2025. Still, the average analyst price target projects a 9.1% decline over the next 12 months.

Data centers are expected to require roughly $7 trillion in capital spending by 2030, according to a McKinsey & Co. report.

At the rapid rate data centers are being built in the U.S., there’s no end in sight for electricity needed to power them. 3,778 data centers are in the U.S., according to Data Center Map.

Through 2028, another 280 or so are expected to come online. The Bank of America Institute has reported that U.S. electricity demand is expected to grow 2.5% annually over the next decade, five times faster than the growth rate over the past decade.

If you’re reading this, you’re already ahead. Stay there with our newsletter.