No longer magnificent? How Apple, Microsoft and other Mag 7 stocks are crumbling under AI pressure
The dominance of the Magnificent Seven technology stocks (Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia and Tesla) is facing its biggest test since the artificial
The dominance of the Magnificent Seven technology stocks (Apple, Microsoft, Alphabet, Amazon, Meta Platforms, Nvidia and Tesla) is facing its biggest test since the artificial intelligence rally began. After leading global markets for nearly three years, the world's largest technology companies are now underperforming as investors question whether the enormous amounts they are spending on AI will generate enough returns.The shift has become visible in recent weeks. According to deVere Group, nearly $2.3 trillion has been wiped off the combined market value of the Magnificent Seven during June.The correction comes after a strong run that was driven by expectations that AI would transform the technology industry and create a new wave of corporate profits. That optimism is now giving way to a more cautious approach as investors wait for evidence that the spending is translating into higher earnings.The upcoming June-quarter earnings season is expected to be an important test for the sector.Nigel Green, chief executive of deVere Group, said markets are entering a more demanding phase for AI investments.The Pakistan connection that helped Donald Trump make $1.4 billion crypto jackpot"The easy phase of the AI investment story is over. Investors were willing to support massive spending when expectations were high and stock prices kept rising.
Now they want proof that these investments will deliver returns," he said.The biggest concern is the scale of spending. Microsoft, Amazon, Alphabet and Meta are investing hundreds of billions of dollars in AI infrastructure, including data centres, advanced chips and cloud computing capacity. Instead of slowing, these investments continue to rise.Reports suggest that spending by the largest technology companies on AI infrastructure could exceed 700 billion this year, around 70% higher than last year. This has started affecting free cash flow, as companies spend more cash on expansion instead of generating higher profits.An Apollo Global Management presentation released in June points to the same trend. The report says investors are beginning to rotate away from companies with heavy capital expenditure towards businesses with stronger free cash flow. It also shows that free cash flow among hyperscalers has started declining while capital expenditure as a share of operating cash flow continues to rise.The Magnificent Seven index has fallen more than 13% from its recent peak, while the broader S&P 500 and Nasdaq have seen much smaller declines. Investors who treated the seven companies as one trade are now beginning to differentiate between them based on business models, profitability and AI monetisation.The pressure is not uniform across all seven stocks.
The BriefWire