Magnificent, alas, no more.
The first quarter of 2025 has been anything but magnificent for the market’s so-called Magnificent 7. The septet of stocks that propelled the S&P 500 to record heights – Apple, Microsoft, Google parent Alphabet, Amazon.com, Nvidia, Meta Platforms and Tesla -has taken a similar leadership role in bringing the benchmark index back down to earth.
The S&P 500 has shed over 6 percent since the start of 2025. Meanwhile, the Roundhill Magnificent Seven ETF (MAGS), which offers equal-weight exposure to the Mag 7, is down 18 percent over the same period at last check. In 2024, the MAGS ETF was up a heady 64 percent, more than double the S&P 500 return of 25 percent for the year.
Of course, it logically follows that the Mag 7 stocks would lead the S&P 500 lower considering the group continues to make up more than 30 percent of the index.
The AI-boom was the catalyst for much of those gains in the Mag 7 last year and expectations for the groundbreaking technology showed no signs of slowing heading into the new year. Heading into 2025, Wall Street was counting on major technology players like Amazon, Google, Microsoft, and Meta to spend a combined $320 to $325 billion on capex, with a significant portion earmarked for artificial intelligence (AI) infrastructure, including data centers and related hardware.
Those AI-related expenditures are now coming into question as the market selloff gains steam and enthusiasm for the space starts to wane. For example, last week’s highly anticipated CoreWeave IPO failed to breathe life back into the AI sector. Shares of the Nvidia-backed AI infrastructure firm closed flat after opening nearly 3 percent below their offer price of $40 in its Nasdaq debut on Friday. The stock was trading close to $36 in early Monday trading.
All this uncertainty has financial advisors wondering if it’s time to move on from the Mag 7 and the AI bubble has burst.
Winston Justice, CEO of SageSpring Private Wealth, for one, does not believe the end of the Mag 7 is at hand. In his view, the Mag 7 stocks still hold a substantial share of the S&P 500 and continue to drive innovation in key sectors like technology, cloud computing, and artificial intelligence. And while their respective shares are seeing some pullbacks, he points out that these companies remain dominant players with strong fundamentals, robust cash flows, and long-term growth potential.
“Market leadership may broaden over time, but the Mag 7 will likely remain influential,” Justice said.
Justice also calls it is premature to deem the “AI bubble” over. While certain AI-related stocks may have been overvalued in recent months, he calls that a "natural part" of market cycles. And even if new IPOs like CoreWeave underperform, he believes the presence of new IPOs signals a maturing industry rather than an outright collapse.
Along similar lines, Nathan Hoyt, chief investment officer at Regent Peak Wealth Advisors, does not see the recent Mag 7 correction as the end of the line for the group.
“These are companies with large economic moats, unlike the largest stocks from prior decades that turned out to be ripe for disruption,” Hoyt said. “I might not expect the outsized returns of the last decade for large cap tech stocks, but I’m entirely convinced that human beings will become more dependent on technology over the next decade, not less.”
Due to his firm belief in the growth of technology, Hoyt also refuses to refer to AI as a bubble “unless it truly does burst.” Investors may be weary after the blistering ride up and the recent pullback, but he thinks it is more “AI fatigue” than a bubble bursting.
Hoyt also would not reduce the entire idea of a “Mag 7” to a Wall Street marketing ploy.
“It can certainly be abused by financial guru self-promotion, but these stocks have produced incredible returns in the past several years. Wall Street or talking heads might be good at branding things, and investors can be mad about owning stocks that fall, but it’s hardly a farce,” Hoyt said.
Moving on, Jake Miller, co-founder and chief solutions officer at Opto Investments, said that while the Mag 7 narrative is almost certainly overdone, these are still some of the most valuable and important companies in the world in their own rights and not to be ignored. Furthermore, he warns investors against reading too much into the CoreWeave IPO failure as a sign of the death of AI’s influence or importance.
“Over the next decade, we will see many traditional, boring industries transformed with AI layers to automate repetitive tasks. Legacy industries are actually more set to benefit in the medium term than the high-tech world, which has embraced automation well in advance of generative AI,” Miller said, adding that this is a 5 to10 year bet and will “take time to show up.”
Finally, Christopher Lange, head of investments at Cache, said the Mag 7’s move down so far this year has not fundamentally changed his view that these are strong companies with healthy earnings, strong balance sheets, and significant free cash flow - all of which is supportive of future growth.
As for the future of AI, he maintains that it is too early to predict where it will ultimately land.
“Undoubtedly, some of the valuations that we are seeing in AI-focused companies are frothy. We believe that many of the more established companies with significant AI exposure will continue to be leaders,” Lange said.
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