As we move into 2026, the strategy of simply buying the Magnificent 7 stocks to easily outperform the market in recent years is no longer effective. Looking back at 2025, while the Magnificent 7 index rose 25% overall, this was primarily due to the significant contributions of Nvidia and Alphabet; most of the other giants actually lagged behind the S&P 500. Wall Street analysts point out that with surging AI capital expenditures but slowing profit growth, investors are no longer satisfied with the promises of AI visions and are instead demanding substantial investment returns. Current market data shows that the profit gap between the Magnificent 7 and the rest of the market is narrowing, meaning that stock picking will be far more important in 2026 than in the past. This article, compiled from Bloomberg analysts' views, will help you understand the divergence trend of the Magnificent 7 and its investment prospects for this year.
A qualitative change in market structure: the end of the era of simultaneous price increases and profit convergence.
Jack Janasiewicz, a strategist at Natixis Investment Management, emphasized that the US stock market is no longer a "one-size-fits-all" market. If investors blindly buy the entire portfolio of the seven tech giants, underperforming individual stocks could offset the gains of the winners. While the bull market that began in October 2022 was led by tech giants, the market breadth is significantly expanding as the remaining 493 stocks in the S&P 500 recover their profits.
According to Bloomberg Intelligence, the seven tech giants are projected to see earnings growth of around 18% in 2026. This is not only the slowest growth pace since 2022, but its advantage is no longer significant compared to the 13% projected growth rate of the rest of the S&P 500. UBS Global Wealth Management also points out that earnings growth is spreading, and "tech stocks are no longer the only game in the market," which will force a reallocation of funds.
Capital Expenditure Stress Test: AI Monetization Capability Becomes a Key Focus
As we enter 2026, the market focus has shifted from "who is investing in AI" to "who can profit from AI." Companies like Microsoft and Meta are facing significant scrutiny of their capital expenditures. Microsoft projects its capital expenditures will climb to $116 billion in the next fiscal year, and while its cloud business is recovering due to data center construction, investors are more concerned about whether its AI services within its software offerings can be successfully monetized. Meta also saw its stock price fall from its peak after raising its capital expenditure forecast to over $72 billion.
In contrast, Apple was seen as a safe haven last year due to its lack of aggressive AI spending, but this year it needs to rely on expected 9% revenue growth to support its high price-to-earnings ratio (P/E) of 31. Currently, the forward P/E ratio of the Big Seven index is about 29, which is lower than the previous high of 40, but against the backdrop of slowing profit growth, investors will pay more attention to the quality of corporate cash flow management and the actual benefits of AI investments.
Divergent Outlooks for the Seven Giants: Nvidia Remains Strong vs. Tesla's Valuation Challenges
The stock performance of the seven tech giants is expected to diverge significantly in 2026, making stock selection crucial. Despite competition from AMD and customer-developed chips, Nvidia remains highly favored by Wall Street analysts due to its chip demand still far exceeding supply, with average target prices implying a potential upside of approximately 39%. Amazon, on the other hand, is seen as a potential frontrunner this year, poised to recover from last year's lagging performance, driven by accelerated growth in its AWS cloud services and improved efficiency through warehouse automation.
In contrast, Tesla, despite CEO Elon Musk's shift in focus to self-driving cars and robotics, and its projected 12% revenue growth by 2026 after a year of contraction, faces market apprehension due to its high price-to-earnings ratio of 200. Analysts are generally pessimistic about its stock price, anticipating a correction of approximately 9.1% this year. As for Alphabet, its newly launched Gemini AI platform has received widespread acclaim. While maintaining its leading position in AI and possessing a relatively reasonable valuation, its stock price has already risen by over 65% last year, leading analysts to believe that its upside potential is limited.
This article discusses the narrowing profit advantage and whether it's still a no-brainer to buy the seven major US stocks in 2026. It first appeared on ABMedia .
