In an effort to beat the market in recent years, many investors have adopted a simple strategy: buy the largest U.S. technology stocks.
It has paid a heavy price over time. But not last year. For the first time since the Federal Reserve began raising interest rates in 2022, most of the seven largest tech companies underperformed the S&P 500. While the Bloomberg Magnificent 7 Index is up 25% in 2025, while the S&P 500 is up 16%, that’s only because letter company and NVIDIA company
Many Wall Street pros believe this dynamic will continue in 2026 as profit growth slows and doubts rise about the returns on massive AI spending. So far, their predictions have been correct, with the Magnificent 7 Index rising just 0.5% and the S&P 500 rising 1.8% at the start of the year. Suddenly, stock picking within the group becomes critical.
“This is not a one-size-fits-all market,” said Jack Janasiewicz, chief portfolio strategist at Natixis Investment Managers Solutions, which has $1.4 trillion in assets. “If you just buy the entire group, the losers may offset the winners.”
The three-year bull market has been led by tech giants including Nvidia, Alphabet, Microsoft company and apple Inc. alone has accounted for more than a third of the S&P 500’s gains since the start of the run in October 2022. But as enthusiasm for them cools, interest The rest of the S&P 500 index rose.
As big tech companies’ earnings growth slows, investors are no longer content with the promise of artificial intelligence wealth — they want to start seeing returns. Profits at Magnificent 7 companies are expected to grow about 18% in 2026, the slowest pace since 2022 and not much better than the projected 13% growth for the other 493 companies in the S&P 500, according to data compiled by Bloomberg Intelligence.
“We’ve seen earnings growth expand, and we think that will continue,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management. “Technology is not the only game in town.”
One source of optimism is the group’s relatively low valuation. The Magnificent 7 index is priced at 29 times expected profits over the next 12 months, down from 40 times at the start of the decade. The S&P 500’s price-to-earnings ratio is 22 times the expected price-to-earnings ratio. Nasdaq The 100 index is 25 times.
Here’s what to expect for the year ahead.
NVIDIA
The dominant AI chip maker is under pressure from increasing competition and concerns about the sustainability of spending by its largest customer. The stock has gained 1,165% since the end of 2022, but has fallen 11% since setting a record on October 29.
competitors AMD Inc. secures OpenAI data center order Oracle Nvidia customers such as Corp. and Alphabet are increasingly deploying their own custom processors. Still, its sales continue to grow strongly as demand for chips outstrips supply.
Wall Street is optimistic, with 76 of 82 analysts covering the chipmaker maintaining a buy rating. The average analyst price target implies an upside of about 39% over the next 12 months, the best of them all, according to data compiled by Bloomberg.
Microsoft
For Microsoft, 2025 marks the second consecutive year it has underperformed the S&P 500. One of the biggest spenders on artificial intelligence, it expects to invest nearly $100 billion in capital expenditures in the fiscal year ending in June. That number is expected to rise to $116 billion next year, according to analysts’ average estimate.
Data center expansions are driving a resurgence in Microsoft’s cloud computing revenue, but the company hasn’t had much success getting customers to pay for the artificial intelligence services it infuses into its software products. Brian Mulberry, client portfolio manager at Zacks Investment Management, said investors hope to start seeing returns on these investments.
“What you’re seeing is some people are looking for more quality management in cash flow management and better profitability in artificial intelligence,” Mulberry said.
apple
Apple’s ambitions in artificial intelligence are far less aggressive than those of other companies in the Magnificent 7. The company’s shares were punished last year as a result, falling nearly 20% through early August.
but then it become popular Considered an “anti-AI” game, the game soared 34% at the end of the year as investors rewarded its lack of AI spending risk. Meanwhile, iPhone sales are strong rest assured Investors believe the company’s most important products remain in high demand.
Accelerating growth will be key for Apple’s stock price this year. Its momentum has slowed recently, and the stock closed higher on Friday, narrowly avoiding tying its share price Longest losing streak Revenue is expected to rise 9% in fiscal 2026, which ends in September, the fastest pace since 2021. The stock is valued at 31 times projected earnings, ranking second among the Magnificent 7 companies Teslait will need a push to keep the rally going.
letter
A year ago, OpenAI was seen as the leader in the artificial intelligence race, and investors worried that Alphabet would fall behind. Today, Google’s parent company has become a consensus leader in the field of artificial intelligence.
Alphabet’s latest Gemini AI model is well received Commentalleviating people’s concerns about OpenAI. Its tensor processing unit chip is considered to have potential important drivers Future revenue growth, which could eat into Nvidia’s dominant share of the AI semiconductor market.
The stock rose more than 65% last year and was the best performer among Huali Seven. But how much further can it go? The company has a market capitalization of nearly $4 trillion and trades at about 28 times forward earnings, well above the five-year average of 20 times. The average analyst price target is expected to rise just 3.9% this year.
Amazon.com
The e-commerce and cloud computing giant is the weakest stock on the Magnificent 7 Index in 2025, marking the seventh consecutive year it has been in that position. But Amazon has burst out of the gate in early 2026 and is in the lead.
Much of the optimism surrounding the company comes from Amazon Web Services, which released its fastest growing The latest performance of the company over the years. Concerns that AWS is lagging behind rivals have weighed on the company’s stock price, as has the company’s aggressive artificial intelligence spending, which includes efforts to make its warehouses more efficient through the use of robotics. Investors expect efficiency gains to start paying off soon, which could turn the stock from laggard to leader this year.
“Warehouse automation and more efficient shipping are going to have a huge impact,” said Clayton Allison, a portfolio manager at Prime Capital Financial, which owns Amazon stock. “It’s not loved yet, but it reminds me of Alphabet last year, when it got left behind amid worries about competition from OpenAI before it really took off.”
meta platform
Perhaps no stock in the group demonstrates investor skepticism about extravagant spending on artificial intelligence more than Meta. CEO Mark Zuckerberg has pushed for expensive acquisitions and talent acquisitions to pursue his artificial intelligence ambitions, which include $14 billion invest In Scale AI, Meta has also hired the startup’s CEO, Alexandr Wang, as its chief artificial intelligence officer.
Shareholders were happy with this strategy—until it wasn’t. Meta raises 2025 capital spending forecast to $72 billion and expects “Exceptionally big”Spending in 2026. Shares were up 35% for the year when they hit an all-time high in August, but have since fallen 17%. Showing how these expenditures improve profits will be critical for Meta in 2026.
Tesla
Tesla shares were the worst performer among the Magnificent 7 stocks through the first half of 2025, but soared more than 40% in the second half as CEO Elon Musk shifted his focus from declining electric vehicle sales to self-driving cars and robotics. The gains valued Tesla at nearly 200 times expected profits, making it the second-most expensive stock in the S&P 500, behind takeover target Warner Bros. Discover Inc.
After two years of stagnant revenue, Tesla is expected to start growing again in 2026. Tesla’s revenue is expected to grow 12% this year and 18% next year, before contracting 3% in 2025, according to data compiled by Bloomberg.
Still, Wall Street remains pessimistic about Tesla shares this year. Analysts’ average price target expects a 9.1% decline over the next 12 months, according to data compiled by Bloomberg.