The Stupendous One: AI Spending Fears Weigh on Tech Giants
Meta Soars, Others Lag in "Mag Seven" Trade
The once-unstoppable "Magnificent Seven" tech giants have lost their luster amid concerns over AI spending. Through January 2025, only Meta (META) has recorded double-digit gains, with a stellar 20% advance year-to-date.
Notable Underperformers
Yahoo Finance data shows that Alphabet (GOOG), Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA) are all down year-to-date, with an average decline of 3%. Tesla has been hit particularly hard, dropping 6% due to weak sales and tariff concerns.
Earnings Disappointments
Six of the "Mag Seven" companies have reported fourth-quarter earnings so far, and all but Meta have underperformed since their announcements. Alphabet's 10.4% decline after its earnings release reflects investors' pessimism about its 2025 outlook.
AI Spending Concerns
Analysts point to eye-popping capital expenditure (capex) plans for AI infrastructure as the primary concern. Meta, Microsoft, Amazon, and Alphabet alone are projected to spend $325 billion on capex and investments in 2025, a 46% increase year-over-year.
Market Impact
The combined weighting of the "Mag Seven" in the S&P 500 has reached record levels of over 30%. Should they continue to underperform, it could have broader implications for the market, especially stocks without direct exposure to the tech sector.
Near-Term Test
Nvidia's earnings on February 26 will serve as a near-term test for the "Mag Seven" bulls. Weak results could further dampen sentiment and raise questions about the sustainability of their growth.