The Magnificent Seven has dwindled to become the Lone Ranger as Meta (META:NASDAQ) is left as the only member of the group to produce positive share price returns so far this year.

The collection of mega cap tech stocks has seen a reversal of fortunes and the market is becoming less bullish on this collective.

Given this shift in sentiment and the fact the Magnificent Seven has a great run since 2023, investors are starting to wonder if it is time to step back and await the next big thing.

WHY DID MAG7 SHARES THRIVE BETWEEN 2023 AND 2024?

Excitement around AI was a key driver for this group of shares over the past few years, either as enablers or beneficiaries. Microsoft (MSFT:NASDAQ), Alphabet (GOOG:NASDAQ) and Amazon (AMZN:NASDAQ) were all about growth in cloud computing and Meta was driven by successful use of AI to improve user engagement on its social media platforms.

At a wider level, AI drove a resurgence in investor appetite for all things tech-related and that has also contributed to the Magnificent Seven’s ascent. Apple (AAPL:NASDAQ) shares moved up as it continued to shift more electronic goods while Tesla (TSLA:NASDAQ) motored higher as Elon Musk became best buddies with Donald Trump, with investors hoping that would open more doors for the electric vehicle business.

WHY HAVE MAG7 STOCKS GONE INTO REVERSE?

Tech stocks rallied when Donald Trump won the 2024 US presidential election on hopes of less stringent regulation. The euphoria around his return to the White House has now fizzled away, with all the S&P 500’s gains wiped out. That’s dampened investor sentiment in general.

The dollar, as benchmarked by the trade-weighted DXY index, is down 5.8% from January’s peak, to erase the gains forged after the presidential poll.

Investors are beginning to realise that Trump’s policies might have negative consequences, even for people in the US. The prospect of a trade war is unsettling and there are far-reaching consequences if it blows up.

We’ve seen a rotation into other areas such as cheap(er) stocks in the UK and Europe, and more defensive areas in the US like healthcare are getting their moment in the sun. Even China is attracting more attention as investors keep their fingers crossed for more government stimulus measures to prop up the economy.

Investors have been sitting uncomfortably when it comes to the US and that’s made them look closer at their portfolios to consider if changes are needed. It’s natural to look at the areas that have previously done well and consider if it is time to lock in gains.

THE HYPE CYCLE

When something is hyped up, a rising tide will lift all boats and that’s exactly what we saw with anything related to AI in 2023 and 2024. The tide is now going out and investors are now paying more attention to what might go wrong and whether recent capital expenditure by tech companies has been worth it.

The easy money has arguably been made on AI stocks so investors are looking more closely – and not everything is rosy. There are concerns companies have spent too much money, too fast. Cheaper options for AI, such as China’s DeepSeek, have helped bring the economics of the technology to the forefront.

AI still has the potential to be ground-breaking for companies around the world – what’s central to share prices now is the pace of the revolution.

Concerns are growing that big tech firms such as Microsoft are dampening rollout plans for new data centres, a sign that the AI boom might take longer to play out than previously expected. The big tech players are also developing their own chips, which spells trouble for Nvidia’s (NVDA) demand going forwards.

With such a growing list of concerns, it’s understandable why investors might be less willing to pay a high multiple of earnings for a stock. Nvidia currently trades on 24 times earnings which is a fraction of the 84 peak earnings multiple in mid-2023 when the world got swept up in all things AI-related. Every single member of the Magnificent Seven has de-rated from its 2024 peak price-to-earnings multiple.

WHERE IS THE MARGINAL BUYER?

Fundamentally, these companies continue to produce a substantial level of earnings, yet you need to consider if excitement around things like AI is already reflected in the share price. Everyone knows about the AI opportunity and it certainly priced into the likes of Nvidia given its massive share price gains in 2023 and 2024.

It’s now a question of who is left that doesn’t already own the stock to play the AI trend. If there is no marginal buyer (someone who is willing to pay top dollar), demand could weaken for the shares and that explains why momentum has faded.

Elsewhere, Tesla has been battling an electric vehicle market that isn’t growing as fast as expected, and competition is still intense. EU and UK sales for Tesla fell by almost half in January and investors have been turned off by the company’s boss controversies. Elon Musk’s position as Donald Trump’s sidekick doesn’t sit well with certain investors or Tesla customers.

Apple seems to be going through the motions and is fixated with constant upgrades to its core products rather than being a trendsetter in the world of consumer electronics. The company is playing it safe and not pushing boundaries with technological innovation. Investors need something new to rekindle excitement in Apple’s shares, otherwise the stock could drift sideways.

WHY IS META THE ONLY MAG7 SHARE TO RISE YEAR TO DATE?

Two tailwinds have driven Meta’s share price. The first is proof that investment in AI is having a positive impact on its earnings. Second is the prospect of its biggest rival in the US, TikTok, potentially being removed from the market.

Investors have been concerned that companies have spent too much money to support AI. Meta has certainly spent its fair share of dollars – billions of them – yet payback is clear to see in its results. AI has enabled Meta to serve up more relevant content to its social media users on Facebook and Instagram. The more content consumed, the more advertising these people see – and that’s a financial win for Meta.

Meta says its AI is already being used by over 700 million consumers and it is now bringing the same technology to businesses. Companies are using its social media platforms to target customers and AI can help to deepen relationships.

IS IT TIME TO SAY GOODBYE TO THE MAGNIFICENT SEVEN NAME?

History shows that these labels come and go. We had the Faangs for a while – Facebook (now Meta), Apple, Amazon, Netflix and Google (now Alphabet). Variations on that name and constituents included Mamaa which swapped Netflix for Microsoft. That turned into Fangman which was a precursor to the Magnificent Seven, with the same members.

While people have happily lumped the Magnificent Seven group of companies together, there are distinct differences between what they do, and they don’t always move in unison on the stock market. While these businesses aren’t at risk of disappearing, their collective name is going out of fashion. It will no doubt be replaced by something else soon – whether that’s a new variation or, perhaps more likely, a new group of companies catching the market’s eye.

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