For several years, market gains have been heavily concentrated in a small cluster of US tech giants, powering a three year bull market and at times contributing more than a third of total S&P 500 growth. That concentration made it easy for investors to outperform by buying the same handful of names. As interest rates stayed higher and the rest of the sharemarket caught up, enthusiasm for a one way bet on mega cap tech began to fade and stock selection inside the group has become far more important.
Even in 2025 the picture was already more nuanced than the headlines suggested. A custom index tracking the seven mega cap tech leaders climbed about 25%, outpacing the S&P 500’s roughly 16% gain. That strength relied heavily on huge advances from just two companies. Heading into 2026, profit growth for the group is forecast to slow to around 18%, only modestly ahead of the roughly 13% expected for the other 493 S&P 500 constituents. At the same time the “Magnificent Seven” trade on about 29 times expected earnings versus about 22 times for the wider S&P 500 and roughly 25 times for the Nasdaq 100. This suggests investors are still paying a premium but not at the eye watering multiples seen earlier in the decade.
Within the group the stories diverge sharply. The leading AI chip supplier continues to post soaring sales as demand outstrips supply, even as rivals win high profile data centre orders and major customers roll out their own custom processors. Cloud and software giants are pouring tens of billions of dollars a year into data centre and AI infrastructure, sparking a rebound in cloud growth but testing investors’ patience on when those AI enhanced services will translate into visibly higher profits. One major hardware and smartphone player has taken a more cautious AI stance, benefiting at times from being seen as lower risk yet now needing faster revenue growth to justify a valuation above 30 times earnings.
Search and advertising leaders once thought to be lagging in AI now appear to hold strong competitive positions across models and custom chips, with investors debating how much further their already substantial market valuations can stretch. The dominant e commerce and cloud platform has swung from serial underperformer to early year leader on renewed optimism about its cloud arm and efficiency gains from robotics and automation in logistics. Social media and digital advertising specialists meanwhile face rising scepticism as escalating AI and infrastructure budgets weigh on sentiment until clearer profit benefits emerge. The electric vehicle and robotics innovator has rebounded from a slump in car sales by leaning into autonomous driving and robots, lifting its share price but leaving it trading at close to 200 times projected earnings and vulnerable to any disappointment.
Taken together, the “Magnificent Seven” still look central to equity markets but their dominance no longer seems guaranteed. Slower growth, intense competition in AI and the narrowing gap between their earnings prospects and those of the broader index suggest the rally is starting to broaden out. For investors this likely means the era of simply buying the whole basket and beating the market is fading, replaced by a more selective environment where valuations, capital spending discipline and clear evidence of AI payoffs may matter as much as brand power or market size.
