Mag Seven Falters: AI Spending Concerns Weigh on Tech Giants
Amidst fears surrounding artificial intelligence (AI) spending, the once-formidable "Magnificent Seven" tech stocks - Meta (META), Amazon (AMZN), Google (GOOG), Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA) - have underperformed in 2025.
While Meta has emerged as the sole standout, posting double-digit gains, the remaining members have experienced year-to-date declines. Tesla, with a 6% loss, has been the worst performer, impacted by lukewarm sales numbers and tariff concerns.
Earnings results have also been less than stellar, with six out of seven Mag Seven companies reporting fourth-quarter declines since their respective announcements. Alphabet has suffered the most, with a 10.4% drop.
The concern revolves around the eye-popping capital expenditures (capex) allocated by Big Tech to develop AI infrastructure. This has raised concerns about profit margin peaks in 2024. Meta, Microsoft, Amazon, and Alphabet alone plan to spend $325 billion in capex and investments in 2025, a 46% increase year-over-year.
Analysts are now questioning whether the weakness in Mag Seven will spill over into the broader market. This is significant given the Mag Seven's combined weighting in the S&P 500 has grown to over 30% in 2024.
Should the weakness persist or be compounded by tariff or inflation concerns, it could have a magnified impact on the overall market. Nvidia's upcoming earnings report on Feb. 26 will be a key test for the Mag Seven's near-term prospects.